Caterpillar (CAT) is underappreciated as a play on artificial intelligence for the physical world, Oppenheimer said in a Friday note.

While recent geopolitical volatility has provided the company's valuation with some relief, investors remain focused on its future beyond cycle dynamics, the report said.

Oppenheimer said it is incrementally bullish on Caterpillar's long-term earnings outlook and views the company as an enabler and leader in physical artificial intelligence.

"CAT's approach to digital has accelerated over the past

five years thanks to a rework of its core data backbone Helios," the note said, pointing to the development-to-commercialization timeline for features like Cat AI assist.

Oppenheimer kept its outperform rating and raised its price target to $817 from $729, expecting a higher terminal value.

Price: 693.03, Change: -13.05, Percent Change: -1.85