Hook & thesis
Celestica delivered a clean Q4 revenue and EPS beat on 02/01/2026: revenue $3.6549B vs est $3.5990B and EPS $1.89 vs est $1.84. The beat looks driven by AI infrastructure — higher-density storage and server builds tied to hyperscaler spending and the firm's SD6300 platform — which masks near-term pressure from higher capital expenditures. For traders, that creates a tactical long: buy the strength in AI demand while limiting downside with a tight stop, because capex increases represent real cash outlays and could pressure free cash flow if the ramp slips.
Trade idea (actionable)
- Trade direction: Long
- Time horizon: Swing / Position (3-9 months)
- Entry: $270 - $290 (current print ~ $285)
- Initial stop: $245 (protects against a >13% drawdown from mid-entry)
- Targets: Near-term $350, secondary $420
- Position sizing: Size to risk no more than 2% of portfolio on stop-to-entry distance.
Why the market should care - business snapshot and fundamental driver
Celestica is a supply-chain-focused electronics manufacturing services (EMS) company organized into two reportable segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). The CCS segment is the primary revenue driver and houses the servers and storage businesses that increasingly sell into hyperscalers and AI infrastructure builds.
What matters now is cyclical demand from hyperscalers for higher-density storage and specialized server platforms. The company flagged the SD6300 platform and storage density gains as push factors in recent press releases, and the Q4 top-line beat ($3.6549B on 02/01/2026) suggests the market is committing incremental budgets to Celestica's AI-capable deployments.
Q4 and recent financial performance - numbers that support the thesis
- Q4 2025 revenue (reported 02/01/2026): $3.6549B vs. estimate $3.5990B (beat).
- Q4 2025 EPS actual: $1.89 vs estimate $1.8399 (beat).
- Q3 2025 (ended 09/30/2025) revenue: $3.194B, gross profit $416.1M, operating income $325M, net income $267.8M. That implies Q3 operating margin roughly 10.2% and net margin ~8.4% on the quarter.
- Operating cash flow is consistent and positive: Q1 $130.3M, Q2 $152.4M, Q3 $126.2M. Investing cash flow each quarter has been ~-$35M to -$37M as the company adds capacity; financing cash flow has been negative (buybacks/debt activity) across recent quarters: Q1 -$213.9M, Q2 -$106.6M, Q3 -$96.8M.
- Fiscal-year-level revenue (sum of four quarters using available quarter data): ~$12.39B (Q1 2.6486B + Q2 2.8934B + Q3 3.194B + Q4 3.6549B).
Bottom line: revenue growth in Q4 (and the EPS beat) was driven by AI-related server and storage demand. Cash generation remains healthy while investment is moderate so far — capex is rising but operating cash flow is large enough to cover it in the near term.
Valuation framing
The dataset does not include a current market cap or explicit EV metrics, but the stock trades near $285 as of 02/03/2026. Historically the share price ranged widely over the past year, from sub-$70 to highs north of $350 as the market re-rated the company for AI exposure; recent volatility reflects the twin forces of strong demand and rising capital intensity.
Given FY revenue on a rough $12.4B run-rate, the multiple that investors are willing to pay should be judged against growth visibility in CCS, gross-margin leverage from higher volumes, and free-cash-flow net of stepped-up capex. Practically, the current price reflects a premium to Celestica's pre-AI valuation regime; that premium is defendable only if AI infrastructure demand continues and margin expansion follows. In short: the valuation premium is a bet on durable hyperscaler demand and execution on capacity expansion.
Catalysts (2-5)
- 02/01/2026 earnings and the 01/29/2026 conference call recaps (company already published results; the call is a forum for incremental color and backlog transparency) - near-term catalyst.
- Further contract wins / design wins for the SD6300 or similar AI storage/server platforms that signal multi-quarter backlog growth.
- Proof of margin leverage: sequential gross- or operating-margin improvement as higher volumes dilute fixed overhead despite increased depreciation from capex.
- Share buyback cadence or a Normal Course Issuer Bid announcement that supports EPS even with higher capex (company has signaled buyback activity in disclosures).
Risks and counterarguments
Every trade needs a sober look at the downside. Here are the principal risks and at least one serious counterargument to the bullish case.
- Capex squeezes near-term FCF - Investing cash flow is trending more negative (~-$35M to -$37M recent quarters). If management accelerates capacity builds and depreciation or working capital swings higher, free cash flow could materially compress, pressuring buybacks and the multiple.
- Execution risk on capacity ramp - Building to serve hyperscalers at scale is operationally complex. Any delay or quality problem with SD6300 rollouts could force Celestica to eat costs or give customers service credits.
- Customer concentration and demand reversal - Hyperscaler budgets can pivot. If one or two large customers cut AI infrastructure spending, Celestica's growth could quickly decelerate.
- Margin pressure from pricing competition - Competitors or internal customer design choices could push pricing down, undermining margin expectations even if volume grows.
- Macro / supply chain shocks - Global macro weakness, currency moves, or parts shortages can distort short-term results and working capital needs.
Counterargument: Higher capex is not necessarily bullish - it could reflect defensive investment to avoid losing share rather than a high-return growth push. If additional spending is largely to match competitors rather than capture unique design wins, returns on invested capital could fall and the stock could derate even with stable revenue growth.
What would change my mind
I would become more cautious if: (1) operating cash flow weakens meaningfully (quarterly OCF drops below ~$80M), (2) the company discloses customer-level concentration risk that shows >30% revenue tied to a single customer with signs of reduced orders, or (3) capex guidance steps up materially without commensurate backlog visibility or binding customer contracts. Conversely, sustained sequential margin expansion and multi-quarter order visibility for SD6300 would make me incrementally more bullish and justify raising targets.
Execution plan for the trade
Initiate a long position within the $270-$290 range. Use a stop at $245 to respect downside if the market re-prices capital-spend risk. Trim into the first target at $350 and let a second tranche run to $420 with a trailing stop to capture further upside if AI infrastructure demand persists. Reassess after each quarter for changes to capex guidance, OCF, and backlog disclosure.
Final thoughts
Celestica's Q4 print (02/01/2026) validates that AI infrastructure demand is a tangible revenue lever for CCS and the SD6300 platform. The beat matters because it shifts the debate from 'will AI lift Celestica' to 'can Celestica scale profitably while investing'? For traders, that dichotomy creates a clear risk/reward: the upside is material if execution and margins hold; the downside is defined and manageable with a disciplined stop because higher capex is visible and quantifiable.
Trade idea summary: long in $270-$290, stop $245, targets $350 and $420, horizon 3-9 months. Monitor OCF, backlog color from management, capex cadence, and customer concentration.
Disclosure
This note is a trade idea, not personalized investment advice. Position size and suitability depend on your portfolio and risk tolerance.