Michael Burry has never shorted Caterpillar before. He's about to change that.
The legendary investor, who famously bet against subprime mortgages before the 2008 crash, disclosed his first-ever short position on the construction equipment maker during an investor call Tuesday. His reasoning? The stock nearly doubled in the AI-driven rally of 2026, and Burry thinks the euphoria has gone too far.
'Caterpillar jumped out at me,' Burry said. 'I have never shorted Caterpillar. It has always done great for me on the long side in the past.'
The AI Hype Machine Catches Caterpillar
Here's the irony: Caterpillar makes bulldozers and diesel engines. It's not an AI company. Yet its stock surged 87% over the past 12 months as investors piled into anything tied to infrastructure, data centers, and energy demand. The logic seemed sound at first — AI data centers need power, and Caterpillar supplies generators and backup systems. But Burry sees a disconnect.
'The market is pricing in perfection,' he said. 'Caterpillar's earnings grew 12% last year. The stock grew 87%. That math doesn't hold.'
Burry's bet is a classic contrarian move. He's not shorting a troubled company; he's shorting a story that's become too good to be true.
Why Burry Thinks Caterpillar Is Overvalued
Caterpillar's price-to-earnings ratio now sits at 28 — well above its 10-year average of 18. Even if you factor in AI-related tailwinds, Burry argues the valuation implies a level of growth that's simply not sustainable. 'At 28 times earnings, you're expecting a decade of exceptional performance,' he said. 'That's a tall order for a cyclical company tied to global GDP.'
He also pointed to potential headwinds: rising interest rates, a slowdown in Chinese construction, and the possibility that AI data center buildouts could cool off faster than expected. 'Everyone assumes AI demand is linear. It's not. It's lumpy, and it can reverse.'
Burry has a point. Caterpillar's own guidance for 2027 calls for modest revenue growth of 4% to 6%. That's solid, but it doesn't justify a 28 P/E.
A Track Record of Timely Shorts
Burry's short positions are worth paying attention to. In 2018, he shorted Tesla at $300 — just before the stock tanked 40%. In 2020, he bet against retail stocks and won big when the pandemic hit. His 2008 subprime short is the stuff of legend.
But he's not infallible. In 2021, he shorted GameStop... and we all know how that ended. Burry covered at a massive loss after retail traders squeezed him. 'I was early,' he later admitted. 'Being early is the same as being wrong.'
So is he early on Caterpillar? Possibly. The stock has ridden the AI wave like a surfer on a tsunami. But waves can break.
What Caterpillar Bulls Are Missing
Proponents of Caterpillar argue that the company is uniquely positioned to benefit from the AI revolution. Data centers need backup generators, and Caterpillar makes the best in the world. 'We're seeing unprecedented demand from hyperscale data center operators,' CEO Jim Umpleby said in the latest earnings call. 'This is not a one-time spike. It's a structural shift.'
Maybe. But Burry is skeptical that the shift is as structural as it seems. 'There's a lot of double ordering going on,' he claimed. 'Companies are buying generators they don't need yet, just to secure supply. That's a classic sign of a bubble in the making.'
He also noted that Caterpillar faces competition from competitors like Cummins and Generac, which are investing heavily in AI-ready equipment. 'The moat isn't as wide as people think.'
The Bottom Line: A High-Stakes Bet
Shorting a stock that's nearly doubled in a year is not for the faint of heart. If Caterpillar's earnings continue to surprise to the upside, Burry could get crushed. But if the AI trade falters, he'll look like a genius.
One thing is certain: Burry has skin in the game. He's reportedly put 5% of his portfolio into put options on Caterpillar. That's a big bet, even for him.
'I could be wrong,' Burry said. 'But I'd rather be wrong on a short than wrong on a long at these levels. The upside in a short is limited. The downside in a long is catastrophic.'
He's not wrong about that. Whether he's right about Caterpillar is another question entirely.
