Key Points
- Machinery and construction growth will likely wait until late 2026. Tariffs and high costs will create a difficult start to the year.
- Mining and public infrastructure are currently the strongest market segments.
- Barclays upgraded Cummins due to high demand for data center power.
- Agricultural equipment makers like AGCO are experiencing a sales downturn.
The U.S. machinery and construction industry is entering a complex yet promising phase. According to a new report from Barclays, investors should expect a slow start to 2026, with most growth arriving in the second half of the year and accelerating further in 2027. While lower interest rates and government support will eventually help the market, near-term challenges like tariffs and high costs remain a problem.
Barclays warns that many Wall Street analysts may be overly optimistic about how much revenue these companies will generate soon. They noted that while demand is slowly returning, it isn’t coming back fast enough to support aggressive profit estimates. The first half of 2026 will likely be tough as companies navigate trade policies and rising expenses.
Geographically, North America remains the best place to invest. Construction and mining equipment currently show the most promise, while the agriculture and trucking sectors remain challenging.
Public construction projects, fueled by infrastructure spending, should stay strong. However, private office and business building projects will likely lag for at least another year.
When it comes to picking stocks, Barclays prefers smaller machinery companies over the big names. They argue that smaller firms have more realistic profit targets and a lower risk of a sudden drop in profits. They upgraded Cummins to an “Overweight” rating and set a $546 price target.
Even though the heavy truck market is slow, Cummins is seeing strong demand for power generators for AI data centers. This new revenue stream makes the company a top pick.
Meanwhile, Caterpillar is expected to report stronger earnings, but the outlook for agriculture remains grim. Barclays downgraded AGCO, noting that farmers simply aren’t in the mood to buy expensive new tractors and equipment right now. Overall, the message for investors is to stay patient.
The sector offers strong opportunities, but the real rewards won’t be realized until the end of 2026.
