Data centers lead the U.S. nonresidential construction boom. UBS Group AG names Carter's Incorporated, Caterpillar (CAT.US), and other potential beneficiary stocks.

According to UBS Group AG's analysis of Dodge Data & Analytics data, U.S. nonresidential construction starts continued to expand in August, with a surge in data center projects helping to offset the impact of weak infrastructure starts. UBS Group AG analysts Steven Fisher and his team said in a September 22 report that total nonresidential construction starts rose 5.8% year-over-year in August and 17.4% over the past three months. On a six-month basis, starts increased 25.8%; over the past 12 months, the increase was 22.1%. Data Centers Lead the Construction Boom The overall August data masked a significant divergence between building construction and infrastructure construction. Building starts rose 31.8% year-over-year, with data center starts surging 248%. Manufacturing starts increased 33%, government building starts surged 201%, and hotel construction rose 55%. Over a longer time span, the data center expansion trend is even more pronounced. Starts in this category grew 262% over three months, 246% over six months, and 197% over the past 12 months. For investors, these data further demonstrate that spending related to artificial intelligence and cloud computing is becoming an increasingly important DRIVE of U.S. construction activity. UBS Group AG expects nonresidential construction spending to accelerate again in the second half of 2026, driven by data centers, power projects, manufacturing including semiconductor and pharmaceutical facilities, and infrastructure construction. Construction starts are an important leading indicator because projects can take years to complete, and current starts will future spending on equipment, engineering, materials, and labor. UBS Group AG currently forecasts that U.S. nonresidential construction nominal spending will grow 6.7% in 2027 after declining 0.9% in 2026. Previously, UBS Group AG had forecast 6% growth next year and 3% growth this year. Infrastructure Hits a Speed Bump Infrastructure construction has somewhat dampened the construction boom. Infrastructure starts fell 21.5% year-over-year in August, compared with 9.2% growth in July. Among them, street and highway starts fell 27.6%, bridges fell 38%, and power plant and natural gas-related project starts fell 19.3%. Dam, reservoir, and river development projects were a notable exception, surging 69%. Over a longer cycle, the momentum in infrastructure starts is much stronger. Over the past six months, infrastructure starts grew 23.1%, and over the past 12 months they grew 27.6%. Power starts grew 54% and 88% over those two periods, respectively. UBS Group AG said the recent infrastructure weakness may be related to the uncertainty surrounding the Infrastructure Investment and Jobs Act's expiration at the end of September and its extension to December. The bank noted that the sector may remain sluggish until the long-term federal funding outlook becomes clearer. Traditional Commercial Construction Remains Weak Not all construction markets participated in this expansion. Warehouse starts fell 21.7% in August and 17.7% over the past 12 months. Office construction excluding data centers fell 15% in August, highlighting the degree to which data center investment has distorted the overall office market. UBS Group AG expects that due to high long-term interest rates and a slow recovery in commercial construction, spending in this category will remain negative through the end of 2026. Which Companies Are Positioned to Benefit? The investment implications of this trend extend to several industrial and materials companies. UBS Group AG noted the following companies have exposure to U.S. nonresidential construction activity: machinery companies including Carter's Incorporated Caterpillar (CAT.US), Deere (DE.US), and United Rentals, Inc. (URI.US); engineering and construction companies including Quanta Services (PWR.US), Jacobs Solutions Inc. (J.US), Fluor Corporation (FLR.US), and EMCOR (EME.US); steel and materials producers including Nucor Corporation (NUE.US), Steel Dynamics (STLD.US), Martin Marietta Materials (MLM.US), and Vulcan Materials Company (VMC.US).