Caterpillar Inc. (NYSE:CAT) shares slid as much as 7% to around $807-$813 on October 7, driven by a surge in 30-year Treasury yields to 5.7%, the highest level in over two decades. As the largest industrial stock, Caterpillar was the single most significant drag on the Dow's decline, with investors reacting to rising borrowing costs that increase the effective price of heavy equipment purchased on credit. The selloff highlighted pre-existing valuation concerns, as Caterpillar traded at approximately 37.1 times trailing earnings before the drop, significantly above historical norms. Analysts note a dual vulnerability: the stock faces pressure from high interest rates and specific sentiment risks regarding its AI infrastructure spending story. While Caterpillar's Power & Energy segment generated $8.24 billion in Q2 2026 sales, up 17% year-over-year, investors are questioning whether this growth can offset a potential slowdown in the traditional construction cycle. Institutional ownership has begun to decline, with hedge fund holdings dropping from 87 funds in the first quarter to 84 in the second, reflecting a reduction in exposure to high-multiple stocks. While some market commentators view the pullback as an opportunity given Caterpillar's critical role in data-center electricity capacity, others warn against buying into a stock whose valuation was already inflated by AI-driven sentiment before the recent rate-driven decline.