Caterpillar (NYSE:CAT) is scheduled to report its second-quarter earnings on August 4, 2026, a crucial test for the company following a recent downturn in its stock price. Despite its significant role in supplying equipment for AI data centers, CAT's shares have fallen by 16.2% over the last month. Analysts are expecting revenue growth of 14.4% year-over-year for the quarter, an improvement from flat revenue in the same period last year, with an average estimate of $19.2 billion. The company has a history of missing Wall Street's revenue estimates multiple times over the past two years, although it did beat both revenue and EPS expectations in the previous quarter, reporting $17.42 billion in revenue, up 22.2% year-over-year.
The market's shift in attention from AI spending to broader macroeconomic concerns like geopolitical conflict and interest rates has impacted the heavy machinery sector, which has generally underperformed, with an average 5% decline in share prices. Caterpillar's stock has surged over 150% in the past 12 months, and over 30% year-to-date, largely due to investor optimism about its power generation segment's strong demand driven by AI infrastructure projects. The company plans to nearly triple its large engine production capacity by 2030 from 2024 levels to meet this demand, and reported a record $63 billion order backlog in Q1 2026, a 79% annual increase, predominantly fueled by AI infrastructure projects. The Power Generation segment saw sales of over $7 billion, up 22% year-over-year, with a profit increase of $162 million.
However, the company faces significant valuation concerns, with a forward price-to-earnings (P/E) ratio of 32, which is higher than companies like Micron and Nvidia, and a trailing P/E of approximately 47x, more than double its 20-year average P/E of 22x. This high valuation leaves little room for error. Adding to investor apprehension, Baird Equity Research recently downgraded the stock to neutral from outperform, citing a growing moratorium on computing facility construction in some regions. Famed investor Michael Burry also revealed a short position against Caterpillar, believing its AI-fueled rally is coming to an end. Despite these challenges, analysts anticipate full-year revenue to reach $76.6 billion, up 13% year-over-year, and EPS to increase from $4.72 last year to $6.2.
