Michael Burry recently shorted Caterpillar’s AI rally 172%. One analyst says his bet won’t matter
Investor Michael Burry of “The Big Short” fame has a new short target on his side: Caterpillar, the heavy machinery giant that has thrived thanks to its growing AI infrastructure.
Burry, a former hedge fund manager who big-timely predicted the 2008 subprime mortgage crisis and made hundreds of millions of dollars from his investors in the process, said Caterpillar stock is now well-known after a rally that saw its stock rise more than 100% last year.
“The Caterpillar jumped out at me,” Burry wrote in a Substack post this week. “I’ve never shorted Caterpillar. It’s always done me good on the long side in the past.”
Times have changed. The investor said he shorted Caterpillar by $1,060.98 per share on Tuesday. On Wednesday, Caterpillar shares were up nearly 7%. As of Thursday, shares were down as much as 4%, hitting their lowest point since mid-June at around $949 per share.
However, not everyone agrees with Burry’s call. Sergey Glinyanov, a senior analyst at Freedom Broker covering Caterpillar, said Good luck in an email that Burry’s short position will not affect the stock at all. What the famous investor is missing is that Caterpillar’s stock price isn’t going up because of AI, he said.
Glinyanov said Good luck that, in fact, investors are rewarding the company because it benefits from a fundamental change in infrastructure spending.
“A structural theme is emerging,” Glinyanov told Fortune, pointing to the growing need for on-site power systems, as AI data centers look for alternatives to an aging power grid that can’t keep up with rising power demands.
As developers build larger and larger AI campuses, they are increasingly looking to the diesel and natural gas power generation systems sold by Caterpillar to secure reliable power. The company’s position in this area enables it to take a large part of that spending, Glinyanov argues.
As AI has driven chipmakers like Nvidia to record highs, investors have also boosted shares of other businesses that may benefit from hyperscalers and a wave of developer spending as they scramble to build data centers. These companies, including GE Vernova, which specializes in power generation, and Ohio-based Vertiv, which offers advanced cooling systems have emerged as a popular way to bet on the AI revolution without buying chipmakers outright. GE Vernova shares are up more than 60% year to date, while Vertiv shares are up 70% over the same period.
However, investors are betting their money that Caterpillar will be among the biggest beneficiaries. The company’s shares have risen nearly 172% in the past 12 months and are up more than 77% this year alone before Burry disclosed his position. Its price-to-sales ratio—a measure of how much investors are willing to pay for each dollar of revenue—is now at its highest level in three decades, he added.
It is this continuation that has Burry betting that the stock is worth more. Yet his latest tirade against the company also builds on his broader belief that the market is in an AI bubble. In May, Burry said the market “feels like the last months of the 1999-2000 bubble.” Along with his Caterpillar short, the investor also said he has renewed his bets against the iShares Semiconductor ETF (SOXX), which tracks semiconductor companies, and has taken positions against Tesla and Nvidia.
It remains unclear whether Burry or Glinyanov will ultimately be proven right.
Glinyanov said the company’s traditional business of selling and renting heavy equipment remains healthy, and the dealer list is improving along with the demand for stores. A combination of consistency in its traditional business and its growing exposure to AI-related energy infrastructure contributed to the stock’s high value, he said. The company’s strong results from the first quarter, which saw sales jump 22% year over year to $17.4 billion and beat Wall Street expectations, added to his discussion.
Still, Glinyanov conceded that Caterpillar’s premium valuation ultimately depends on big AI companies continuing to exploit new data centers and energy infrastructure.
His firm’s price target is $910, indicating a “possible near-term pullback,” he said. If hyperscalers quickly pull back on their massive data center investments, some of the optimism around Caterpillar could quickly disappear.
“If we see a deterioration in the fundamentals of hyperscalers—particularly revenue or debt burden—the stacks could experience a meaningful pullback,” he said.
