Is Celestica Poised to Dominate the AI Infrastructure Boom

Key Takeaways

• Celestica (CLS) is strategically positioned to capitalize on the explosive demand for AI data center infrastructure, evidenced by its significantly raised 2026 revenue outlook of $17.0 billion and robust growth in its Connectivity & Cloud Solutions (CCS) segment.
• The company's engineering leadership in high-speed networking, particularly 800GbE and 1.6T switches and liquid-cooled rack systems, is driving substantial market share gains and solidifying its role as a critical partner for major hyperscalers.
• While an aggressive $1.0 billion capital expenditure plan and high customer concentration present near-term risks, Celestica's strong financial performance, analyst consensus "Buy" rating, and $365.60 consensus price target suggest a compelling long-term growth narrative.

Is Celestica Poised to Dominate the AI Infrastructure Boom?

Celestica Inc. (NYSE: CLS) appears strategically positioned to be a significant beneficiary of the ongoing artificial intelligence (AI) infrastructure build-out, as evidenced by its recent upward revision of financial targets for fiscal year 2026. The company, which has successfully transitioned from a traditional electronics manufacturing services (EMS) provider to a high-value engineering partner, now projects $17.0 billion in revenue and $8.75 in adjusted earnings per share (EPS) for 2026. This updated guidance reflects management's confidence in sustained demand for AI-focused data center technologies.

This bullish outlook is rooted in Celestica's strong Q4 2025 performance, where it reported revenue of $3.65 billion, a 44% year-over-year increase, and an EPS of $1.89, both surpassing analyst estimates. The Connectivity & Cloud Solutions (CCS) segment, which now accounts for roughly 75% of total revenue, was the primary driver of this growth, surging 64% year-over-year in Q4 2025. This segment's impressive trajectory underscores Celestica's deep integration into the hyperscaler ecosystem, providing essential hardware and supply chain solutions for the next generation of AI compute capacity.

The company's strategic pivot towards Original Design Manufacturing (ODM) has been instrumental in capturing this market opportunity. Rather than merely assembling components, Celestica now designs and builds advanced networking and thermal management systems critical for high-performance AI chips. This shift allows Celestica to offer more specialized, higher-margin solutions, differentiating it from traditional EMS competitors and reinforcing its role as a "toll booth" on the highway to AI. Investors are increasingly recognizing this transformation, with the stock trading at $292.69 as of February 20, 2026, reflecting a market capitalization of $33.67 billion.

The revised 2026 outlook is not just a projection; it's a testament to Celestica's "unprecedented visibility" into customer roadmaps extending through 2027. This visibility is driven by multi-year infrastructure programs with large customers, particularly in the AI-related data center equipment space. The company's commitment to aligning new capital investment with these long-term contracts signals a durable growth engine, making Celestica a compelling consideration for investors seeking exposure to the foundational elements of the AI revolution.

How is Celestica Capturing Market Share in High-Speed Networking?

Celestica's ability to capture significant market share in the rapidly evolving data center networking landscape is directly attributable to its advanced engineering capabilities and strategic focus on high-speed solutions. The company has emerged as a leader in enabling the transition to 800GbE fabrics in AI data centers, a critical component for running AI and high-performance computing (HPC) workloads at scale. This leadership was recently validated by Dell’Oro Group, which highlighted Celestica's key milestones in market share and growth for the AI-backend Ethernet switching data center market.

According to Dell'Oro's Q1 2025 Ethernet Switch – Data Center Quarterly Report, Celestica was among the top four vendors driving strong double-digit networking revenue growth and captured the highest share gain during the quarter. Crucially, the company retained its leadership in 800G by shipping over 1.6 million 800Gbps-based ports in Q1 2025. This dominance is further underscored by Celestica earning the 2024 Dell'Oro Market Share Leader Badge Awards for both Ethernet Switch – AI Networks and High-Speed Networks (≥ 800G). These accolades confirm Celestica's solid execution and cement its position among the elite vendors in this competitive space.

The company's open networking approach, which emphasizes high-performance and scalability, resonates with customers seeking flexible solutions for both new AI initiatives and mission-critical data center functions. Celestica is not only providing networking solutions for custom AI chip leaders like Broadcom but also counts major players such as Marvell Technology, AMD, and Intel among its partners. This impressive clientele and its role in designing and building high-speed 800G and 1.6T (terabit) switches, alongside complex liquid-cooled rack systems, underscore its integral role in the AI infrastructure supply chain.

Furthermore, Celestica's expansion into ultra-dense storage hardware, such as the SD6300 platform, adds another layer to its AI strategy, addressing the specific storage demands of AI workloads. The company's commitment to significantly enhanced services and support, both directly and through an expanding partner network, further solidifies its leadership in the open networking revolution. This dual approach of technological innovation and robust customer support positions Celestica to continue gaining traction as AI investments accelerate into 2025 and beyond.

What Does Celestica's Financial Performance Tell Us?

Celestica's recent financial performance paints a picture of robust growth and improved efficiency, largely driven by its strategic pivot towards AI infrastructure. The company's trailing twelve months (TTM) revenue stands at $107.93 per share, with impressive year-over-year growth of 30.7% in FY2025. This top-line expansion has translated into even more significant bottom-line improvements, with TTM EPS at $7.25 and net income growth of 97.9% in FY2025. Over a longer horizon, the company's 5-year cumulative net income growth per share has been a staggering 1465.1%, highlighting a remarkable transformation.

The company's profitability margins are also on an upward trajectory, reflecting its focus on higher-value segments. TTM gross margin is 11.6%, operating margin is 7.6%, and net margin is 6.7%. These figures, particularly the operating margin, demonstrate strong productivity and efficiency improvements across its manufacturing operations. Celestica's adjusted EBIT margin is forecasted to improve to 8.0% by FY27, further indicating management's commitment to enhancing profitability.

From a valuation perspective, Celestica trades at a TTM P/E ratio of 40.38, a P/S of 2.71, and an EV/EBITDA of 27.90. While these metrics might appear elevated compared to broader market averages, they reflect the market's confidence in Celestica's scalable AI networking leadership and defense margin expansion potential. The stock's current price of $292.69 is within its 52-week range of $58.05 to $363.40, showcasing significant appreciation over the past year.

Despite the strong growth, Celestica's aggressive $1.0 billion capital expenditure plan for 2026, aimed at expanding capacity for AI data center hardware, is expected to temper free cash flow (FCF) to approximately $500 million in 2026. This "investment phase" could lead to a period of FCF yield of 1.4%, which is lower than some peers in a "harvest phase." However, management has confirmed that this substantial investment will be covered by internal cash generation, and the long-term FCF growth of 53.9% in FY2025 suggests a strong underlying cash generation capability once these investments mature.

What Are the Key Risks and Opportunities for Celestica Investors?

Investing in Celestica, despite its compelling AI narrative, comes with a distinct set of risks and opportunities that investors must carefully weigh. On the opportunity side, Celestica is rapidly expanding its footprint in the open networking market, gaining market share and securing new AI infrastructure business. The company's leadership in 800GbE and 1.6T switching programs, with 10 active programs in development for the second half of 2026, positions it as a critical enabler for the next wave of AI compute. BNP Paribas, for instance, included Celestica in its list of top AI picks for 2026, citing the durability of data center investments and improved visibility through 2026 across server, networking, and storage ecosystems.

Furthermore, Celestica's Advanced Technology Solutions (ATS) segment, which includes Aerospace & Defense (A&D), Industrial, and HealthTech businesses, offers diversification beyond the hyperscaler market. With rising global defense spending, Celestica's expertise in manufacturing high-reliability electronic systems for mission-critical military applications presents a scalable engine for growth. The company provides solutions like rugged avionics and secure communication systems, adhering to strict regulatory standards like ITAR, which positions it well to benefit from increased demand for advanced defense electronics.

However, significant risks accompany these opportunities. A primary concern is customer concentration, with Celestica's top three customers accounting for roughly 63% of its revenue. This heavy dependence on a few "Kingmaker" hyperscalers means that any shift in orders or capital expenditure plans from these major clients, such as Google reportedly shifting some AI server assembly to other suppliers, could have a magnified impact on Celestica's financials. This concentration risk is further highlighted by a recent securities fraud investigation by Pomerantz LLP, following reports of potential customer shifts.

Another risk factor is the company's aggressive $1.0 billion capital expenditure plan for 2026. While necessary for capacity expansion, this investment could temper short-term free cash flow and potentially lead to periods of stock underperformance if revenue growth doesn't outpace expectations. Additionally, Simply Wall St's valuation model flags the shares as trading about 123.8% above its estimated fair value, suggesting a potential overvaluation based on that specific model. Recent insider selling over the past three months also warrants investor attention, as it can sometimes signal a lack of confidence despite the strong growth narrative.

What Does This Mean for Investors?

For investors considering Celestica (CLS), the current landscape presents a compelling, albeit complex, investment thesis. The consensus among Wall Street analysts is overwhelmingly positive, with a "Buy" rating based on 25 analysts (15 Buy, 10 Hold, 0 Sell). The average analyst price target stands at $365.60, with a median of $377.50 and a high of $440.00, suggesting a significant upside from the current price of $292.69. This bullish sentiment is driven by Celestica's strong positioning in the AI infrastructure market and its robust financial performance.

The company's forward estimates are equally impressive, with consensus revenue projected to reach $23.9 billion in FY2027 and $31.2 billion in FY2028, alongside EPS estimates of $12.74 and $17.02 for the same periods, respectively. These projections underscore the anticipated long-term growth trajectory fueled by the insatiable demand for AI compute and networking. The market's initial caution regarding the $1.0 billion CapEx plan has largely given way to a realization that Celestica is a vital "toll booth" for the AI highway, especially after major hyperscalers like Alphabet confirmed their own substantial capital expenditure plans.

However, investors should remain cognizant of the inherent volatility and risks. The stock's beta of 1.50 indicates it is more volatile than the broader market, and recent momentum has shown some weakness, with a 10.4% decline in the 30-day return despite the upgraded outlook. The customer concentration risk is real, and any slowdown in hyperscaler spending or a shift in supplier relationships could impact Celestica's growth trajectory.

Ultimately, Celestica represents a high-growth opportunity tied to one of the most transformative technological shifts of our time. Its engineering leadership, strategic pivot to ODM, and strong financial performance make it a standout player. Investors with a long-term horizon and a tolerance for higher risk might find Celestica a valuable addition to their portfolio, provided they monitor customer relationships and the execution of its ambitious capital expansion plans.

Celestica's strategic investments in AI infrastructure and its proven engineering capabilities position it for continued growth. While customer concentration and significant capital expenditures warrant close attention, the company's strong financial performance and analyst confidence suggest a promising outlook. Investors should consider Celestica's role as a foundational enabler of the AI revolution, balancing its high growth potential with its inherent risks.

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