Michael Burry’s Favorite Stock Faces a 26% Morgan Stanley Price Target Cut

Caterpillar ($CAT) is facing a tougher test as investors shift their focus from its AI-driven growth to the cyclical risks facing its core business. Morgan Stanley maintained an Equal-weight rating but cut its price target to $675 from $915, a reduction of approximately 26%.
The downgrade follows Caterpillar’s October 29 third-quarter report. Revenue rose 17% to $20.7 billion, adjusted earnings per share increased 45% to $7.20, and the company reported a record $78 billion backlog. Power and Energy sales climbed 18% to $8.8 billion, supported by demand from data centers and AI infrastructure.
However, bookings declined approximately 11% sequentially to $25.6 billion, missing expectations of more than $29 billion. Caterpillar also expects dealers to reduce inventories by roughly $1.6 billion in the fourth quarter, compared with $1 billion previously. The outlook was further pressured by manufacturing and inflation costs, including $600 million in tariff expenses.
Morgan Stanley identified two key risks: the sustainability of data center power demand and continued dealer inventory reductions. The bank cut its 2026 EPS estimate to $27.24 from $28.38 and its 2027 estimate to $31.49 from $33.22. It expects the stock to trade between $550 and $800 over the medium term.
Despite the reduced outlook, Morgan Stanley stopped short of an Underweight rating, citing Caterpillar’s substantial backlog, strong free cash flow, and potential share buybacks. Its bull-case price target remains $915, while its bear case falls to $450 if a U.S. slowdown and weak dealer restocking pressure margins.
The shift highlights the challenge facing Caterpillar: strong AI-related demand is supporting growth, but slowing orders and dealer inventory cuts could make it harder for the company to meet elevated investor expectations.