On October 7, Caterpillar Inc. (NYSE:CAT) slid as much as 7% to around $807-$813, with Deere & Company (NYSE:DE) down 4% to roughly $658 as the 30-year Treasury yield climbed to 5.7%, its highest level in over two decades. Industrial stocks were among the hardest-hit sectors, while the S&P 500 finished down approximately 0.2%, reflecting broader pressure from rising Treasury yields alongside concerns about a federal inquiry into competition in the agricultural equipment industry.
Caterpillar was the single most significant drag on the Dow, which fell 341 points, or 0.7%, to 51,180. With Caterpillar and Deere facing valuation pressure, investors may want to look beyond heavy machinery. See which 8 industrial stocks offer opportunities for investors in 2026
Why Bond Yields Hit Heavy Equipment Stocks Hard
The mechanism is simple: heavy equipment is typically purchased on credit, whether by construction firms financing a fleet of excavators or farmers financing a combine, so when long-term borrowing costs rise, the effective price of that equipment rises alongside them, regardless of how strong current order books appear. That’s why industrials as a whole fell more than three times compared to the broader market, and Caterpillar Inc., the largest and most valuable name in the sector, took the worst hit.
Valuations Were Already Stretched
The most important aspect, however, is that both stocks were already trading at high multiples before the October 7 selloff, which alters how this selloff should be read. Caterpillar traded at approximately 37.1 times trailing earnings on October 6, before the selloff, above even the standards of an industrial sector trading well above its historical norms, with a forward multiple in the mid-20s. Deere’s multiples were also similarly inflated, despite Deere’s agricultural end-markets currently experiencing a cyclical slump rather than a demand boom. The valuation concerns aren’t new: at the end of June, Michael Burry announced a short position in Caterpillar Inc. at $1,060.98, claiming that the stock’s AI-driven surge had inflated its valuation beyond what its underlying earnings could support.
Caterpillar’s AI Exposure Adds a Second Risk
However, the two stocks don’t have equal exposure to the same story. Caterpillar’s trailing sales growth has been more than twice that of Deere’s, 18.36% versus 7.98%, supported by growing data-center power demand alongside strong performance in its Construction and Resource Industries segments, with a backlog that extends into 2029 and 2030. That offers Caterpillar’s larger multiple more growth to point to, but it also means Caterpillar faces a second source of valuation risk in addition to interest rates: sentiment toward AI infrastructure spending in particular. Its Power & Energy segment generated $8.24 billion in total sales in the second quarter of 2026, up 17% year-over-year, while data center demand has emerged as a significant driver of the company’s growth story. That dual vulnerability is why the more relevant question is not whether Caterpillar Inc. can continue to grow, but whether its AI-related power sector can compensate for a slower construction cycle.
The stock has already shown that it can sell off on that trade alone, regardless of rates. Caterpillar Inc. fell 4% in mid-September, while Deere & Company increased 1% on the same day, due to concerns that hyperscaler data-center commitments had been overextended. The split only makes sense if investors distinguish Caterpillar’s AI-driven premium from its more traditional construction and mining operations. Jim Cramer has stated that the pullback may be an opportunity because Caterpillar’s engines and power-generation equipment have become an important source of data-center electricity capacity.
Deere Is a Different Recovery Bet
Meanwhile, Deere & Company is a more conventional cyclical-recovery bet. Its bull case is based on agriculture demand bottoming and rising through 2027. The company boosted its fiscal 2026 net-income forecast to $4.75 billion-$5.00 billion, although management continues to expect large agricultural equipment demand in the US and Canada to fall 15%-20% this fiscal year. Lower farm profitability, increased input prices, and higher interest rates have made farmers more hesitant to replace expensive gear. That is why Deere’s investment case is less concerned with AI sentiment and more with whether its competitive advantages, technology adoption, and improved used-equipment inventories will convert into a long-term recovery.
Hedge Fund Positioning
Hedge fund ownership in both companies fell modestly heading into the selloff. Caterpillar’s holdings declined from 87 funds in the first quarter to 84 in the second, while Deere’s dropped from 62 to 59. The declines are slight and nearly equal in size, but they lean in the same direction as the valuation picture: institutional investors were already reducing exposure to two stocks trading at high multiples before long yields reached a two-decade high.
Insider Monkey’s Verdict
The next key indicator for both stocks will be whether long yields stabilize, given their role in the broader market selloff, alongside regulatory concerns affecting equipment manufacturers. However, investors should be careful not to consider this purely as a rate story that leads to a discount on otherwise reasonably priced companies. Both Caterpillar Inc. and Deere & Company began the week trading at some of their highest multiples in their respective trading histories. Investors looking for an entry point in this selloff should distinguish between buying a brief rate-driven drop in a company whose fundamentals still warrant a premium and buying a stock whose multiple was already well ahead of its growth rate before the October 7 decline began.
While we acknowledge the risk and potential of CAT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CAT and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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