Live by AI and die by AI.

Caterpillar stock has become an AI darling, with its power-generation products aiding the data center build-out boom. But cracks are appearing in the AI story, with investors wondering whether hyperscaler capital spending can continue to rise. The mounting risks were too much for one analyst.

Baird analyst Mig Dobre downgraded Cat stock to Hold from Buy on Wedensday. His price target went to $900 from $1,200 a share.

"The ground is shifting in many ways; the recent New York State moratorium on data center construction is the highest-profile example of a bigger (and growing) trend towards regulatory action at [the] state and local level targeting data centers," wrote Dobre. "This raises costs, adds new development approval hurdles, limits site availability, and likely slows future investment."

In July, New York Governor Kathy Hochul signed an executive order on AI data centers, effectively slowing development. Slowing means less growth, and growth stocks don't like less growth. Caterpillar might not be a classic growth stock, but its shares have been driven by order growth lately, making any deceleration in data center spending problematic.

"Vox Populi, Vox Dei," added Dobre. That translates roughly to the voice of the people is the voice of god. "There are few matters in today's highly polarized political environment that most voters agree on; opposing data center construction at the grassroots level is one of those items."

Cat stock was down almost 4% in premarket trading at $809, while S&P 500 and Dow Jones Industrial Average futures were up 0.3% and down 0.1%, respectively.

Coming into Wednesday trading, Caterpillar stock has been incredibly strong -- up 47% so far this year and up 96% over the past 12 months. Still, they were down more than 20% from a 52-week high of more than $1,073.

All the gains have left Cat stock trading at about 30 times earnings expected over the coming 12 months. Over the past few years, Cat stock has traded at an average of closer to 15 times.

With the downgrade, 50% of analysts covering the shares rate them Buy, according to FactSet. The average Buy-rating ratio for S&P 500 stocks ranges from about 55% to 60%. The average analyst price target for Cat stock is about $988, up from about $420 a year ago.