• Baird downgraded Caterpillar to Neutral and slashed its price target.
• The firm said restrictions on data centre development are spreading beyond New York, signalling a broader nationwide trend.
• Baird also flagged mounting policy risks, including tighter zoning rules, water and energy regulations and potential tax incentive rollbacks.

Caterpillar Inc. (CAT) shares fell nearly 8% in midday trading on Wednesday after Baird Equity Research downgraded the stock, citing growing regulatory and public backlash against data centre construction.

At the time of writing, CAT stock had pared some losses but was still trading about 6.5% lower.

Baird Flags Growing Data Centre Headwinds

Baird downgraded Caterpillar to Neutral on Wednesday, pointing to the moratorium on computing facilities construction announced by New York earlier this month as part of what it described as an emerging nationwide trend.

“It’s not a blue vs. red state issue; investment hurdles are emerging everywhere,” Baird analyst Mircea wrote in a note, according to a CNBC report.

The brokerage said pushback against data centres from state and local governments is gaining momentum across the U.S. The debate extends beyond construction moratoria to include new laws on water and energy use, rollbacks of tax incentives, and stricter enforcement of zoning regulations.

Baird added that the regulatory backdrop could weigh on Caterpillar's valuation, calling it “a recipe for further multiple compression, particularly should data centre policy/regulatory headwinds amplify in the wake of the upcoming election cycle.” The analyst lowered the stock's price target to $900 from $1,200. The revised price target still implies and upside of around 7% from Tuesday’s close. 

CAT Stock: What Stocktwits Retail Sentiment Says

Stocktwits retail sentiment on CAT was ‘bearish,’ while message volume was 'normal’ at the time of writing.

Despite Baird's downgrade, Wall Street remains broadly positive on CAT. According to data from Koyfin, 14 of the 28 analysts covering ASML rate it ‘Buy’ and ‘Strong Buy,’ while 12 rate it ‘Hold.’ The 12-month average target for the stock is $958.83, representing a potential upside of about 14% from the last close.

CAT stock is up around 35% year-to-date and 81% from a year ago.

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