"Big Short" Burry shorts Caterpillar (CAT.US), books nearly 300% gain before sharply cutting position; valuation pressure may persist as growth outlook clouds over

Michael Burry, the investor famous for accurately predicting the 2008 subprime mortgage crisis, has disclosed that he cut his bearish position in construction equipment manufacturer Caterpillar (CAT.US) by 75%. Burry said the gains on his put options had nearly quadrupled, so he chose to lock in most of the profit while retaining a smaller position. "I roughly quadrupled my money on my Caterpillar puts, and today I cut the position by 75%," Burry said in his Substack post. "So the position is now roughly back to the dollar amount at which I established it at the end of Q2." In Burry's view, slowing economic growth, weak infrastructure spending and falling equipment demand will hit Caterpillar's earnings. He believes the company's currently strong earnings will eventually revert to normal levels, which would pressure its stock valuation and trigger a sharp decline in the share price. However, Burry's move to sharply cut his Caterpillar puts may mean he sees limited further downside for the stock, making the bearish trade less attractive. Caterpillar is facing concerns over slowing growth, an uncertain outlook for artificial intelligence (AI) spending and production bottlenecks. The stock is now down about 47% from its June high. Its valuation has fallen from nearly 39 times forward earnings earlier this year to about 19 times currently, reflecting lower market expectations for future growth. Caterpillar's fiscal 2026 third-quarter results, reported at the end of last month, showed revenue rose 17% year on year to US$20.68 billion, driven by volume growth and price realization. Revenue in the Power & Energy segment rose 18% year on year to US$8.78 billion. On earnings, adjusted earnings per share were US$7.20, above the market expectation of about US$7.03. Operating profit was US$4.21 billion, up 38% year on year, with an operating margin of 20.4%; the adjusted operating margin was 20.6%, up 3.1 percentage points from a year earlier. Although Caterpillar's third-quarter earnings beat market expectations, investors remain concerned about slowing revenue growth and whether the company can meet rising demand. Even as demand for generators and power equipment from AI data centers remains strong, Caterpillar maintained its forecast for mid-single-digit to high-teens percentage revenue growth in 2026. At the same time, Caterpillar is facing capacity constraints that make it hard to keep pace with order growth. Its order backlog reached a record US$78.1 billion, but the increase was below market expectations. In addition, growing market concerns about the AI boom, tariffs and rising diesel prices have also weakened investor confidence in Caterpillar's stock outlook. Morgan Stanley, in a research report released at the end of last month, sharply cut its Caterpillar price target to US$675 from US$915, explicitly judging that the stock has formally shifted from AI-theme-driven valuation expansion into a "cyclical valuation correction" phase. While the bank maintained its "equal-weight" rating and "attractive" industry view, it said outright that the market had already priced the stock for "perfection," leaving little room for error. DA Davidson cut its Caterpillar price target to US$685 from US$882 but maintained its "neutral" rating. The bank said all three of Caterpillar's business segments achieved strong growth in the third quarter, with the order backlog up 96% from a year earlier. However, it also noted that the stock's valuation is still 50% above that of peer companies. By contrast, retail investor sentiment toward Caterpillar on the Stocktwits platform remained "bullish." Still, some cautious users on the platform said: "Selling generators to data centers does generate real revenue until those data centers stop placing orders. The equipment cycle always seems to end the same way the backlog looks like it will never end, but right before cancellations start quietly appearing, the market often hasn't realized it yet."