“Big Short” Bury shorted Caterpillar (CAT.US) positions after making a profit of nearly 300%, and the growth prospects are overshadowed, and valuation pressure is likely to continue

The Zhitong Finance App learned that Michael Berry, an investor famous for accurately predicting the 2008 subprime mortgage crisis, revealed that he had cut his bearish position on construction machinery manufacturer Caterpillar (CAT.US) by 75%. Burry said that the return on the put option holdings was close to 4 times the original, so he chose to lock in most of his profits while retaining a smaller position.

Burry said in his Substack article: “The value of my Caterpillar put options has increased about 4 times, and today I cut my position by 75%. As a result, the current market value of this position has roughly returned to the dollar amount at the time I established this position at the end of the second quarter.”

According to Berry, a slowdown in economic growth, weak infrastructure spending, and falling demand for equipment will have an impact on Caterpillar's profits. He believes that the company's current strong profits will eventually fall back to normal levels, putting pressure on its stock valuation and triggering a sharp drop in stock prices. However, Bury's move to drastically cut his put options on Caterpillar now may mean that he believes there is limited room for the share price to fall further, so the appeal of this bearish trade has declined.

Caterpillar is facing concerns about slowing growth, uncertain prospects for artificial intelligence (AI) spending, and production bottlenecks. Currently, Caterpillar's stock price has dropped about 47% from its June high. The stock's valuation has dropped from close to 39 times the expected profit earlier this year to about 19 times the present, reflecting lower market expectations for future growth.

Caterpillar's results for the third quarter of 2026 announced at the end of last month showed that revenue for the quarter increased 17% year over year to US$20.68 billion, driven by sales growth and price realisation. Among them, the revenue of the electricity and energy sector increased 18% year over year to US$8.78 billion. In terms of earnings, adjusted earnings per share were $7.20, higher than market expectations of approximately $7.03. Operating profit was US$4.21 billion, up 38% year on year, and operating margin was 20.4%; adjusted operating margin was 20.6%, up 3.1 percentage points from the same period last year.

Although Caterpillar's third-quarter earnings performance exceeded market expectations, investors are still concerned about the slowdown in revenue growth and the company's ability to meet growing demand. Although demand for generators and power equipment in AI data centers remains strong, Caterpillar maintained a single-digit forecast of up to ten percent revenue growth in 2026.

At the same time, Caterpillar is facing capacity restrictions, making it difficult to keep up with order growth. The company's order backlog reached a record $78.1 billion, but the increase fell short of market expectations. Furthermore, growing market concerns about the AI boom, tariffs, and rising diesel prices have weakened investors' confidence in Caterpillar's stock price prospects.

Morgan Stanley helped cut Caterpillar's target price from 915 US dollars to 675 US dollars in a research report released at the end of last month, clearly judging that the stock has moved from AI-driven valuation expansion and officially moved into the “cyclical valuation correction” stage. Although the bank maintains a “hold and see” rating and an “attractive” industry view, it bluntly says that the market has already set stock prices to a “perfect” level, leaving little room for fault tolerance.

DA Davidson lowered Caterpillar's target price from $882 to $685, but maintained a “neutral” rating. The bank said that Caterpillar's three business divisions all achieved strong growth in the third quarter, and the order backlog increased 96% over the same period last year. However, the bank also pointed out that the stock's valuation is still 50% higher than that of companies in the same industry.

In contrast, retail investors' sentiment about Caterpillar remains “bullish” on the Stocktwits platform. However, some cautious users of the platform said, “Selling generators to data centers can indeed bring real revenue until these data centers stop placing orders. The equipment industry cycle always seems to end the same way—the backlog of orders seems to never end, yet the market often doesn't realize it until cancellations begin to creep in.”