Caterpillar stock has suffered a big reversal in the past few months, moving from a high of $1,070 in June to the current $759, its lowest level since April 16. CAT has dropped by 30% from the year-to-date high of $1,070. This retreat will likely continue as a death cross pattern slowly nears.
Caterpillar is benefiting from the AI business
Earlier this year, Caterpillar stock was one of the best-performing companies on Wall Street as investors cheered its power business. For some time, it was the top gainer in the Dow Jones, beating AI companies like Microsoft and Nvidia.
The rally was justified by its power and energy business, which has benefited from the ongoing AI boom. That’s because many data center companies are using its generators for backup power. Its last earnings report showed that the segment made $8.2 billion in the second quarter from $7 billion in the same period last year.
The segment’s profit rose to $2 billion, up from $1.5 billion in Q2’25. This growth was driven by higher sales volume and price boosts.
Caterpillar’s management expects its power business to continue growing in the foreseeable future as data center deployments continue. The risk, however, is that data center cancellations are growing in the US.
Its other businesses also did well. Its construction business made over $8.3 billion in the second quarter from $6.3 billion in the same period last year. Its profit rose to $1.94 billion from $1.2 billion in the same period last year. Its resource revenue rose from $3.9 billion to $4.6 billion.
Valuation concerns remain
A key challenge for Caterpillar is that it has become highly overvalued. Seeking Alpha data shows that it trades with a forward non-GAAP price-to-earnings ratio of 30, higher than the sector median of 18.8. This multiple is higher than the S&P 500 average of 19.1.
The forward GAAP PE ratio is 29.8, also higher than the sector median of 21. These numbers are also higher than many fast-growing companies, including popular names like Nvidia and Micron.
Caterpillar is also confronting relatively higher interest rates, with the ten-year hovering at the highest level in two decades. Higher rates may lead to lower demand for capital-intensive products.
These fears explain why analysts are slashing their estimates. Citigroup’s Kyle Menges lowered the target from $1,100 to $950. Jamie Cook, a Truist analyst, slashed the target from $1,225 to $1,100. The average target among analysts is $982, lower than $992, where it was a month ago.
Caterpillar stock technical analysis
CAT stock chart | Source: TradingView
The daily chart shows that the CAT stock has been under pressure in the past few months. It has dropped from a high of $1,070 in June to the current $764. It moved below the important support level of $774, the lower side of the descending triangle pattern.
The stock is attempting to form a death cross pattern as the spread between the 50-day and 200-day moving averages narrows. It has also dropped below the Ultimate Support level of the Murrey Math Lines tool. Therefore, the stock will likely continue falling, potentially to the oversold level of $687.
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