Caterpillar's AI Surge Masks High Valuation Concerns

Caterpillar is riding the wave of strong demand in AI infrastructure, but its stock price may be getting ahead of itself.

The heavy equipment manufacturer reported a record quarterly sales figure of $20.5 billion for Q2 2026, a 24% increase from the previous year, driven by growth across all segments and particularly in power and construction equipment used in AI data center projects.

However, Caterpillar's stock price is trading at over 30 times forward earnings, with a free cash flow yield of just 3.2%. This high valuation leaves little margin for safety, suggesting potential medium-term downside as valuations normalize.