Caterpillar has become an unexpected winner from the AI trend, as its power-generation equipment helps fuel the data-center construction surge. However, concerns about whether big tech companies will keep increasing their spending have led one Wall Street firm to take a more cautious view of the stock.
On Wednesday, Baird downgraded Caterpillar and cut its price target, pointing to increased regulatory risks for data-center projects. The firm highlighted New York’s recent pause on data-center construction as a key example of a wider trend, where more state and local governments are pushing back against these developments. Baird said these rules make projects more expensive, add approval steps, reduce available locations, and will likely slow future investment.
In July, New York’s governor signed an executive order that paused data-center development in the state. If data-center growth slows, Caterpillar could see fewer orders. The company’s recent stock gains have been closely linked to this area, so any slowdown in spending is a real risk.
Baird also pointed out that opposition to building local data centers is one of the few issues that both political parties and the public widely agree on, even in today’s divided political climate.
Caterpillar shares dropped nearly 4% in premarket trading, doing worse than the overall market futures.
Before Wednesday, Caterpillar was one of the market’s top performers, rising 47% this year and 96% over the past 12 months. Still, the stock is more than 20% below its 52-week high. The recent rally has pushed shares to about 30 times expected earnings for the next year, much higher than the usual average of around 15 times in recent years.
After the downgrade, about half of the analysts who follow Caterpillar still have a positive outlook on the stock, according to FactSet. This is lower than the usual 55% to 60% bullish average for S&P 500 companies. Even so, the average analyst price target for Caterpillar has risen sharply over the past year, despite Wednesday’s cut.
