Investor Michael Burry, known for accurately predicting the 2008 subprime mortgage crisis, has disclosed that he reduced his bearish position against construction equipment manufacturer Caterpillar (CAT.US) by 75%. Burry stated that the gains on his put options had grown to nearly four times their original value, so he chose to lock in most of his profits while retaining a smaller position.
In his Substack article, Burry said: "My Caterpillar put options grew approximately four times in value, and today I reduced that position by 75%. As a result, the market value of this position has roughly returned to the dollar amount level when I established it at the end of the second quarter."
In Burry's view, slowing economic growth, weak infrastructure spending, and declining equipment demand will weigh on Caterpillar's earnings. He believes the company's currently strong profits will eventually revert to normal levels, which would pressure its stock valuation and trigger a significant decline in share price.
However, Burry's move to substantially cut his bearish options position on Caterpillar may suggest he sees limited room for further downside in the stock, making the bearish trade less attractive.
Caterpillar is facing concerns over slowing growth, uncertain artificial intelligence (AI) spending prospects, and production bottlenecks. The stock has fallen about 47% from its June high. Its valuation has dropped from nearly 39 times expected earnings earlier this year to approximately 19 times currently, reflecting reduced market expectations for future growth.
Caterpillar's third-quarter 2026 results released at the end of last month showed revenue grew 17% year-over-year to $20.68 billion, driven by volume growth and price realization. The Power & Energy segment saw revenue rise 18% year-over-year to $8.78 billion. On the earnings front, adjusted earnings per share came in at $7.20, beating market expectations of approximately $7.03. Operating profit was $4.21 billion, up 38% year-over-year, with an operating margin of 20.4%; the adjusted operating margin was 20.6%, up 3.1 percentage points from the same period last year.
Although Caterpillar's third-quarter earnings beat market expectations, investors remain concerned about slowing revenue growth and whether the company can meet rising demand. While demand for generators and power equipment from AI data centers remains strong, Caterpillar maintained its 2026 revenue growth forecast of mid-single-digit to low-double-digit percentages. Meanwhile, Caterpillar is facing capacity constraints, struggling to keep pace with growing orders. The company's order backlog reached a record $78.1 billion, but the increase fell short of market expectations. Additionally, growing market concerns about the AI boom, tariffs, and rising diesel prices have further weakened investor confidence in Caterpillar's stock outlook.
Morgan Stanley sharply cut its price target on Caterpillar from $915 to $675 in a research report released at the end of last month, explicitly concluding that the stock has officially shifted from AI-theme-driven valuation expansion into a "cyclical valuation correction" phase. While maintaining an "Equal Weight" rating and an "Attractive" industry view, the firm stated bluntly that the market had already priced the stock for "perfection," leaving little room for error. DA Davidson also lowered its price target on Caterpillar from $882 to $685 while maintaining a "Neutral" rating. The firm noted that all three of Caterpillar's business segments achieved strong growth in the third quarter, with order backlog up 96% from the same period last year. However, it also pointed out that the stock's valuation remains 50% higher than that of its industry peers.
In contrast, retail investor sentiment toward Caterpillar on the Stocktwits platform remains "bullish." Still, some cautious users on the platform noted: "Selling generators to data centers does generate real revenue—until those data centers stop placing orders. The equipment industry cycle always seems to end the same way—the order backlog appears endless, but just before cancellation orders quietly start appearing, the market often hasn't yet realized it."
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