By Al Root

The Big Short investor Michael Burry, who famously profited from the 2008 subprime mortgage meltdown, has a new bearish bet: Caterpillar stock.

Shares of the relatively uncontroversial maker of heavy machinery for mining and construction aren't a typical target for short-sellers, who borrow stock they don't own and sell it, hoping for share price declines so they can buy positions back later at a lower price.

Cat stock was down 4.6% in early trading at $1,015.85, while the S&P 500 was off 0.6%.

But Cat has become an AI stock. Its power-generation products are flying off the shelves, in demand by AI data centers seeking ever-growing amounts of electricity. First quarter sales in Cat's Power and Energy business rose 22% year over year.

Growth has made investors euphoric. Cat stock rose 86% in the first half of the year, leaving it up 172% over the past 12 months. Shares trade for 39 times earnings expected over the coming 12 months, according to FactSet. That is not industrial-like. Cat stock fetched 13 times earnings three years ago.

Cat is trading for about six times sales expected over the coming 12 months. That's nowhere near the long-term average of closer to one to two times sales.

To be sure, Cat is expensive. The Burry short is just another reminder that AI is driving the market and turning almost any stock into an AI play.

The problem with short selling is timing. Short sellers typically need to be right quickly or risk piling up losses as shares move higher. It's hard to say if Burry is right this time.

Caterpillar has been a Barron's stock pick since 2024. It was a bet on improving demand and management's ability to improve margins. We didn't understand how good demand would get.

Investors can always trim winners to ensure that no position becomes too large a part of their portfolio. Having a range of portfolio weightings is a simple risk management technique.

(Cat has become an increasingly big portion of the Dow Jones Industrial Average, which is a price-weighted index, and Cat had the biggest stock price coming into Wednesday trading, just ahead of Goldman Sachs.)

Trimming is an option for investors nervous about Burry or Cat's valuation. But if AI spending keeps moving higher, so could Cat.

Write to Al Root at allen.root@dowjones.com

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