For nearly two centuries, Deere (DE +2.75%) has been synonymous with the American farmer. But after the company reported first-quarter earnings in February, a new growth story began to emerge.
It didn't come from the company's highly publicized software strategy or its autonomous tractors. It came from its construction and forestry (C&F) division, where a 50% jump in the order backlog put the focus back on Deere's oldest business, selling "dumb iron" to dig the physical foundations for AI data centers.
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An ag cycle bottoms, a tech cycle begins
The agricultural downturn has been years in the making, following a peak in U.S. net farm income in 2022. Revenue fell 25% to around $46 billion in 2025.
The price of used equipment tells us a lot about where the cycle stands. When farmers are optimistic, they trade in older machines for new ones, but dealers can only accept trade-ins if they have room on their lots.
For the past year, this dynamic stalled under a glut of used inventory. Prices for high-horsepower Model Year 2022 and 2023 8R tractors plummeted more than 40% from their peak, dropping another 20% in the first quarter.
That said, Deere has been using "pool fund" incentives to help dealers clear their lots. Used combine inventories are returning to normal, and the order book for new large tractors now extends into the fourth quarter of 2026.
Construction steals the show
While management's call that the ag cycle will bottom this year provided some relief, the C&F segment delivered the real surprise. The construction business posted 34% year-over-year revenue growth, with one key driver being the accelerating build-out of data centers.
As hyperscalers like Amazon, Microsoft, and Alphabet pour capital into artificial intelligence, they require a massive expansion of physical infrastructure. Deere's excavators, wheel loaders, and other heavy equipment are essential to that construction.
This demand provides a powerful, non-cyclical tailwind, creating a durable revenue bridge while the ag cycle finds its footing. The C&F performance, along with 24% revenue growth in its small ag and turf segment, more than offset a modest 3% gain in its flagship production and precision ag segment. In the first quarter, this pushed total revenue to $9.6 billion, well above consensus estimates of $7.6 billion.
That growth is being offset by an estimated $1.2 billion in annual tariff-related costs. These costs lowered the segment's operating margin to 5.1% in Q1, though management expects margins to recover to a range of 9% to 11% for the full year. In addition, Deere raised its earnings guidance to $4.5 billion to $5.0 billion and its operating cash flow projection by $500 million.
NYSE: DE
Key Data Points
The stock trades at over 32 times forward earnings, a sizable premium to its five-year average of around 17 times. The market appears to be pricing in an ag recovery and a sustained expansion for its construction business. It's a rich valuation, valuing Deere not just as a tractor company but as an essential supplier to the AI infrastructure build-out.
