Caterpillar Inc. (NYSE: CAT) shares dropped 7 percent to $807–$813 on October 7, while Deere & Company (NYSE: DE) fell 4 percent to roughly $658. The selloff coincided with the 30-year Treasury yield climbing to 5.7 percent, its highest level in over two decades.
The mechanics are straightforward: equipment purchases—excavators, combines, industrial machinery—rely on credit financing. Rising long-term borrowing costs directly inflate the effective price buyers pay, regardless of order backlogs.
Caterpillar's trailing price-to-earnings ratio stood at 37.1 times on October 6, well above typical industrial sector valuations. Its forward multiple sat in the mid-20s. Deere carried similarly elevated multiples despite facing a cyclical agricultural downturn. Michael Burry disclosed a short position in Caterpillar at $1,060.98 at the end of June, arguing that AI-driven momentum had detached valuation from underlying earnings.
But the two companies are not equal plays. Caterpillar posted 18.36 percent trailing sales growth—more than double Deere's 7.98 percent. The company's backlog extends into 2029 and 2030, and its Power Energy segment generated $8.24 billion in second-quarter 2026 sales, up 17 percent year-over-year, driven largely by data-center power demand.
That growth story justifies a larger multiple than Deere commands. The risk: if artificial intelligence infrastructure spending slows or fails to meet the consensus runway, Caterpillar faces not just rate headwinds but also mean reversion on valuation multiples built on AI upside assumptions.
A federal inquiry into agricultural equipment competition adds pressure on the sector, though it poses a greater threat to Deere's margins than Caterpillar's growth narrative.
The Oct. 7 move is a reminder that even strong fundamental growth cannot exempt a stock from dual compression—one from macro forces (rates) and one from sentiment (AI spending durability).
