Deere & Company

(New York Stock Exchange)
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Very Bullish +91

The Green Machine Finds a Second Gear as AI Data Centers Drive 50% Order Growth

AI-generated analysis

🚜 Deere's agricultural business is entering a cyclical downturn after peaking in 2022, with revenue falling 25% to approximately $46 billion in 2025.

πŸ“‰ Prices for high-horsepower used tractors have plummeted over 40% from their peak due to a glut of used inventory and stalled dealer trade-ins.

🚜 Deere uses pool fund incentives to help dealers clear lots, allowing new tractor order books to extend into the fourth quarter of 2026.

πŸ—οΈ The company's construction and forestry division delivered a surprise with 34% year-over-year revenue growth, primarily driven by AI data center build-outs.

πŸ’» Hyperscalers like Amazon, Microsoft, and Alphabet are investing heavily in physical infrastructure, making Deere's heavy equipment essential for digging foundations.

πŸ“ˆ Total Q1 revenue reached $9.6 billion, surpassing consensus estimates of $7.6 billion thanks to growth in construction and small ag segments.

βš–οΈ Tariff-related costs of an estimated $1.2 billion annually lowered the operating margin to 5.1% in Q1, though management expects a full-year recovery to 9%-11%.

πŸ’° Deere raised its earnings guidance range to $4.5 billion to $5.0 billion and increased its operating cash flow projection by $500 million.

πŸ’Έ The stock trades at over 32 times forward earnings, a significant premium to its five-year average of 17 times as the market prices in AI infrastructure growth.

πŸ€– The new growth story stems not from software or autonomous tractors, but from heavy equipment sales for digging physical foundations for AI data centers.

πŸ“‰ Management warned that while the ag cycle should bottom this year, a premium valuation leaves little room for error during the recovery.

πŸ”Ž Used combine inventories are returning to normal levels following a year of stalled dynamics under the weight of excess stock.

Bullish Signals
  • Deere's construction and forestry division posted 34% year-over-year revenue growth, driven by accelerating demand for heavy equipment to build AI data centers.
  • The order backlog in the construction and forestry segment surged 50%, highlighting a strong non-cyclical tailwind as hyperscalers like Amazon, Microsoft, and Alphabet invest in physical infrastructure.
  • Total Q1 revenue reached $9.6 billion, significantly beating consensus estimates of $7.6 billion, thanks to growth in the C&F segment and small ag/turf business which saw 24% revenue expansion.
  • Management raised its annual earnings guidance to a range of $4.5 billion to $5.0 billion and increased operating cash flow projections by $500 million.
  • The company expects operating margins to recover from Q1's 5.1% to a full-year range of 9% to 11%, reflecting confidence in profitability recovery.
  • The agricultural cycle is bottoming out with used combine inventories normalizing and the order book for new large tractors extending into Q4 2026.
  • Deere positions itself as an essential supplier for the AI infrastructure boom, transitioning from a pure play ag company to a builder of critical data center foundations.
Risk Factors
  • The company's core agriculture business is currently at the bottom of a cyclical downturn, with revenue falling 25% to around $46 billion in 2025.
  • Prices for high-horsepower Model Year 2022 and 2023 8R tractors have plummeted more than 40% from their peak, dropping another 20% in the first quarter due to a glut of used inventory.
  • A premium valuation leaves little room for error as the recovery unfolds, with the stock trading at over 32 times forward earnings compared to its five-year average of around 17 times.
  • Tariff-related costs offset growth by an estimated $1.2 billion annually, lowering the segment's operating margin to just 5.1% in Q1.
  • The Motley Fool Stock Advisor analyst team does not recommend Deere & Company as one of their 10 best stocks for investors to buy now.
Full Analysis
Deere & Company (NYSE: DE) is finding new growth momentum as its core agriculture business approaches the bottom of a cyclical downturn, while demand from artificial intelligence data center construction drives equipment sales forward 50% higher. In the first quarter, total revenue reached $9.6 billion, surpassing consensus estimates of $7.6 billion, propelled by strong performance in its construction and forestry (C&F) division and small ag segments. The agricultural sector, following a peak in U.S. net farm income in 2022, saw revenue fall 25% to around $46 billion in 2025 due to a surplus of used inventory that caused prices for high-horsepower tractors to drop more than 40% from their peak and another 20% in the first quarter. However, Deere has utilized pool fund incentives to clear dealer lots, with used combine inventories returning to normal and new large tractor order books extending into the fourth quarter of 2026. Management indicated that the agricultural cycle should bottom this year while construction business revenue grew 34% year-over-year, fueled by hyperscalers like Amazon, Microsoft, and Alphabet investing heavily in physical infrastructure for AI. The surge in C&F orders represents a shift toward what executives describe as "dumb iron" essential for digging foundations for data centers, creating a powerful non-cyclical tailwind that supports revenue while the ag cycle stabilizes. This dual-engine strategy contributed to significant segment growth, including 24% revenue increase in small ag and turf, more than offsetting a modest 3% gain in production and precision ag. Despite this robust performance, the company faces challenges related to estimated $1.2 billion in annual tariff-related costs, which lowered the first quarter operating margin to 5.1%, though management expects full-year margins to recover to a range of 9% to 11%. Consequently, Deere raised its earnings guidance to between $4.5 billion and $5.0 billion and increased its operating cash flow projection by $500 million, reflecting confidence in both the anticipated agricultural recovery and sustained expansion in construction equipment demand. Investors are currently valuing Deere at over 32 times forward earnings, which is a sizable premium compared to its five-year average of around 17 times. This high valuation suggests the market is pricing in a simultaneous recovery for agriculture and long-term expansion within the construction business linked to the AI boom. While the company's ability to pivot from a tractor-focused identity to an essential supplier for the AI infrastructure build-out offers resilience, the premium multiple leaves little room for error as the recovery unfolds. The article notes that despite Deere's positive fundamentals in this new growth story, the Motley Fool Stock Advisor analyst team recently identified ten other stocks they believe offer better investment opportunities at this time, highlighting a cautionary perspective regarding Deere's current market positioning relative to alternatives.