Caterpillar Stock Plunges on Baird Analyst Downgrade as ‘Regulatory Action’ Will ‘Raise Costs’

Caterpillar stock (CAT) became a top choice for artificial intelligence investors due to strong demand for its power gear used in data centers. However, new local rules and public opposition now threaten to slow that growth. A Wall Street analyst downgraded the stock today, sending shares lower. Caterpillar stock fell 3.7% at yesterday’s close and dropped another 4.1% in pre-market trading to $806.

While CAT shares rose 47% earlier this year, new government rules pose a new threat. Politicians in states like New York are freezing new AI data center permits over power grid and sustainability concerns. Essentially, this slows down orders for Caterpillar’s equipment, thus impacting the business’ revenue.

Baird Has Downgraded Caterpillar Stock

Baird analyst Mircea Dobre downgraded Caterpillar stock from Buy to Hold on Wednesday, cutting his price target from $1,200 down to $900 a share. Dobre pointed out that state and local leaders are moving to limit data center builds. “The ground is shifting in many ways; the recent New York State moratorium on data center construction is the highest-profile example of a bigger (and growing) trend towards regulatory action at [the] state and local level targeting data centers,” wrote Dobre. He added that “this raises costs, adds new development approval hurdles, limits site availability, and likely slows future investment.”

Dobre stated that voters across political groups oppose new build sites. “Vox Populi, Vox Dei,” added Dobre, translating the phrase to mean the voice of the people is the voice of God. “There are few matters in today’s highly polarized political environment that most voters agree on; opposing data center construction at the grassroots level is one of those items,” he said.

Local Rules Are Slowing Down Data Center Growth

Politicians are acting to slow down the quick growth of data centers. In July, New York Governor Kathy Hochul signed a rule pausing new AI data centers. This order delays new project approvals. Because Caterpillar stock traded like a fast-growing tech stock lately, any fall in new sales creates risk for investors.

The recent price drop leaves Caterpillar trading at about 30 times its expected earnings over the next year. That price level sits far above its usual average of roughly 15 times earnings. Following the downgrade by Baird, only 53% of analysts covering Caterpillar rate the stock as a Buy.

Other valuation tests show Caterpillar stock may have risen too far, too fast. A recent report from Simply Wall St placed the fair value of Caterpillar stock at $240.80 a share, far below its current price near $806. While Caterpillar stays profitable and machinery sales remain strong, its high stock price leaves little safety room if data center sales start to drop.

Is Caterpillar a Buy, Hold, or Sell?

According to TipRanks, Caterpillar stock (CAT) has a consensus Moderate Buy rating among 17 Wall Street analysts. This rating is based on nine Buy and eight Hold ratings assigned in the past three months. The average 12-month CAT price target of $999.80 implies 18.9% upside from current levels. (See CAT stock forecast)

See more CAT analyst ratings