The global construction equipment market is expected to reach $169.6bn in 2026, with growth projected at 6.1% CAGR through 2035, supported by infrastructure pipelines, urbanization and mining demand, according to the market research and consulting firm Global Market Insights.

However, growth is not uniform and the cycle remains fragmented across geographies and end-markets, with Asia accounting for roughly 42% of demand, reinforcing regional concentration risks.

Japan’s Komatsu designs, manufactures, and services heavy equipment used in construction, mining and infrastructure projects. Its portfolio ranges from excavators and haul trucks to autonomous and electrified machinery, with a growing push into digital fleet management and lifecycle support.

The near term tells a different story. Demand is expected to remain flat in 2025–2026, as customers delay buying new equipment and use what they already purchased after the pandemic surge. Inventory levels are still adequate. So new orders face resistance, despite supportive long-term themes. This disconnect matters more than headline growth.

Komatsu remains a global heavyweight with a market share of roughly 11%–12%, second only to its global competitor Caterpillar. However, its earnings model still leans heavily on equipment sales rather than recurring service revenues. This makes margins more cyclical and sensitive to pricing shifts.

The issue here is timing. Komatsu is entering a softer demand phase after already raising prices as much as it could. Now costs, such as tariffs and inflation are increasing, just as sales growth starts to slow. When pricing power fades and costs keep rising at the same time, it becomes much harder to protect margins.

Growth brake

Revenue growth has resisted, although has lost momentum. FY 25 revenue reached JPY 4.1tn (c. $30bn), up just 0.7% from FY 24, i.e. effectively flat after two years of strong expansion. This marks a clear deceleration from the previous year’s 6% growth, showing that demand is stabilizing, and not continuing with strong growth.

Profitability weakened materially: net income fell 14.4% y/y to JPY 376.4bn from JPY 439.6bn in FY 24, while Operating income declined 13.7%. Margins fell, not because sales dropped sharply, but because costs like inflation, tariffs and weaker product mix outran price hikes.

The core drivers remain infrastructure demand and mining capex. However, FY 25 shows the cycle turning. Revenue resilience masks deteriorating earnings quality. The real test now is whether Komatsu can keep margins steady even if sales volumes don’t grow.

Stock surge

Komatsu is trading at JPY 6,638, up 49% y/y, although still below its 52-week high of JPY 7,840. This shows that the rally has already lost steam. The market pushed the stock hard when pricing and margins were working - now that story is uncertain.

The valuation hasn’t caught up yet. The FY 27e forward P/E stands at 16.3x. Compare this to its 3-year historical average of 11.4x; the lift reflects earlier optimism rather than current numbers. With a market cap of JPY 5.9tn ($38bn), it trades like a peer with stronger service economics, which it simply doesn’t have.

Analysts aren’t buying optimism either, with just 3 buyers and the other 8 on Hold. Their average target price of JPY 6,422 is actually below (just over 3%) the share's current price. That spread says it clearly: upside has already been priced in, and the debate now is about how much will be shaved off.

Peak tested

The warning signs look structural and not temporary. Pricing carried the last cycle, but that tailwind is fading. And unlike peers with deeper service income, Komatsu still relies heavily on equipment profits, which are more cyclical and volatile.

The company has proved that it can benefit from a strong cycle, although the environment is proving to be less forgiving. The real question now is whether it can maintain its margins steady as demand cools - and competition becomes more aggressive.