Shares of Caterpillar tumbled 5.1% to $868.04 on June 10, as investors rushed to lock in gains from a rally that has reshaped how Wall Street views the century-old equipment maker. The stock had climbed roughly 60% year-to-date and more than 160% year-over-year , driven by a dramatic shift: Caterpillar is supplying the foundational "picks and shovels" needed to build and power the colossal data centers driving AI's expansion. Tuesday's selloff suggests some shareholders decided the price had gotten ahead of reality.

  • The AI Story Is Real, but the Valuation Is Stretched. Caterpillar reported a 22% revenue increase to $17.4 billion in Q1 2026, crushing estimates of $16.4 billion.

Its power generation business — supplying generators and turbines to AI data centers — saw retail sales explode 44% year-over-year. Yet Morningstar recently pegged fair value at just $680 per share, meaning that even before today's drop, shares above $900 assumed an exceptionally favorable outcome. At roughly 40 times trailing earnings — significantly above the machinery industry average — any disappointment could trigger sharp moves, as today showed.

  • A Record Backlog Gives Visibility, but Margins Are Slipping. Caterpillar's order backlog surged to a record $51.2 billion. That visibility is unusual for an industrial company and underpins bull cases. However, trailing operating margins fell to 17.4% from 20.9% in 2024, while gross margins dropped to 28.8% from 32.5% — a sign that surging demand is bringing higher costs along with it. Management warned of a $2.6 billion tariff hit in 2026 , a headwind that won't vanish overnight.

  • Power Generation Is Now the Company's Growth Engine. In 2024, the energy and transportation segment overtook construction for the first time, generating $28.9 billion versus $25.5 billion.

Caterpillar has committed $725 million to expand its Indiana plant and plans to more than double turbine production capacity by 2030. Rivals like Cummins and GE Vernova are chasing the same opportunity, so execution speed matters.

  • The Pullback May Be Healthy, but Risks Remain. To justify recent price levels, investors must believe in "double-digit sustainable earnings growth" for well over a decade.

Caterpillar is targeting $30 billion in annual services revenue by 2030, up from $24 billion last year , which would add steadier, repeating income. The question is whether that transition happens fast enough to support a stock that's already priced like a tech company wearing a hard hat.