Caterpillar Drops 5% as Market Reprices Its Data Center Power Premium

Caterpillar shares fell roughly 5% on Tuesday, with the stock touching $760.64 in afternoon trading, extending a 7% decline over the prior month. The selloff is focused squarely on the premium valuation the market had assigned to the company's data center power business, which had driven its trailing price-to-earnings ratio to 34x on the back of 17% Power and Energy segment sales growth.

The move stands out because the rest of the heavy machinery sector held up far better. Deere rose about 2% on the same session, PACCAR slipped less than 1%, and the broader industrial sector ETF XLI fell only 1%, isolating the selling pressure in Caterpillar specifically rather than across the group. That divergence points to investors unwinding CAT's AI and data center premium rather than reacting to a sector-wide concern.

Compounding the valuation pressure, Caterpillar is carrying an estimated $600 million Q3 tariff burden, and operating margins are running near the bottom of the company's target range. Bulls counter that the data center power order book is contracted years ahead, with management having stated in August that turbine lead times stretch into 2029, suggesting near-term sentiment may not translate into a fundamental demand reversal. Caterpillar's decline contributed to a 134-point drop in the Dow Jones Industrial Average on the day.