Buy Celestica (CLS): AI Demand Is Rolling In — The Discount Is Closing

Hook & thesis

Celestica is no longer just a contract manufacturing box in the background. Over the last four quarters the company has posted accelerating revenue (Q1 2025 to Q4 2025: $2.65B -> $3.65B) and expanding operating profit. That trajectory is not coincidental - it's driven by large cloud and AI storage/server platform wins (SD6300 cited in the company release) and a clear shift of mix into higher-value connectivity & cloud solutions. At roughly $307 per share today, the market is already paying up for growth, but the company's under-recognized cash generation, active buyback program and a still-reasonable revenue multiple create a concrete trade opportunity.

Thesis in one line: Celestica is benefiting from an accelerating AI/data-center cycle, compounding sequential revenue and margin improvement; if that continues, the company's valuation gap to infrastructure peers should compress and the stock should re-rate materially. This is a buy with explicit entry, stop and targets — size it according to risk appetite and follow the catalysts listed below.

What the business does and why the market should care

Celestica provides supply chain and manufacturing solutions across two reportable segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). CCS is the revenue driver and includes servers and storage for enterprise and hyperscaler customers. The market cares because hyperscalers are in a concentrated hardware refresh cycle for AI workloads that favors suppliers who can deliver custom high-density storage and server platforms quickly and at scale. The company specifically highlighted the SD6300 platform and storage density improvements in its investor communications, which are exactly the type of product features hyperscalers are ordering now.

Why this is different than past cycles: this refresh is being driven by sustained AI compute investments (not a one-off consumer gadget), which tends to produce larger, more predictable multi-quarter order flows when a supplier is approved. Celestica has shown sequential wins and is translating those wins into revenue and profit.

Hard numbers that back the story

• Revenue has grown quarter-to-quarter through fiscal 2025: Q1 $2,648,600,000 - Q2 $2,893,400,000 - Q3 $3,194,000,000 - Q4 $3,654,900,000 (revenueActual for Q4). That is a clear acceleration in top-line momentum over the year.
• Gross profit and operating income have expanded alongside revenue: gross profit rose from $273.9M (Q1) to $371.0M (Q2) to $416.1M (Q3). Operating income improved from $128.8M (Q1) to $272.5M (Q2) to $325.0M (Q3), showing leverage as sales scale.
• Net income and EPS show the same trend: net income Q1 was $86.2M (EPS ~$0.74), Q2 $211.0M (EPS $1.82), Q3 $267.8M (EPS $2.31). Q4 EPS came in at $1.89 (02/01/2026 earnings release) alongside $3,654.9M of revenue for the quarter.
• Cash flow from operations is solid and consistent: Q1 $130.3M, Q2 $152.4M, Q3 $126.2M. Management is pairing cash generation with share repurchases - financing cash flows are negative each quarter (Q1 -$213.9M, Q2 -$106.6M, Q3 -$96.8M) - consistent with a normal course issuer bid referenced in the company's release.
• Balance sheet: current assets were $5,142.8M at Q3 with inventory $2,046.7M and current liabilities $3,502.3M. Equity attributable to parent was $2,028.6M at Q3.

Valuation framing - math first then context

Using the most recent reported diluted share count (~115.9M shares) and a last trade/close near $307, the market capitalization is roughly $35.6B (307 x 115.9M ≈ $35.6B). Summing the four fiscal 2025 quarters gives implied trailing twelve month (TTM) revenue of about $12.39B (Q1+Q2+Q3+Q4 ≈ $12.39B). That implies a market-cap-to-revenue multiple around 2.9x (≈ $35.6B / $12.39B).

Put plainly: the market is paying ~2.9x revenue while Celestica is showing accelerating revenue and expanding margins. If the AI/cloud mix continues to increase, investors should be willing to pay a higher multiple for the company (compression of the discount to higher-value infrastructure peers). Even a modest multiple expansion to 3.5-4.0x revenue would materially lift the equity value, before accounting for further operational leverage and buybacks.

Note on caveats: this is a surface-level valuation using market cap and reported quarterly shares; enterprise value would require an exact cash/debt snapshot (not fully standardized across the quarters above). The revenue and profit trajectory, however, stands independently and supports a re-rating scenario if the AI ramp persists.

Trade plan (actionable)

• Trade direction: Long (buy CLS)
• Time horizon: Swing (weeks to 3-6 months) with a position add/re-evaluation window into 12 months if catalysts confirm.
• Entry: 295 - 315 (current intraday center is ~307 — look to scale between these levels).
• Initial stop-loss: $270 (approx. 10-12% below current mid-entry; invalidates the multi-quarter acceleration thesis if price breaks materially below recent support).
• Near-term target (take-profit 1): $360 (roughly +16% from mid-entry) — reasonable if another quarter of sequential revenue growth and margin expansion prints or if a new hyperscaler contract is announced.
• Stretch target (take-profit 2): $420 (roughly +36% from mid-entry) — achievable on multiple expansion to ~3.5-4.0x TTM revenue combined with continued net income growth and steady buybacks.
• Position sizing note: This should be sized as a tactical swing trade within a diversified portfolio. Use the stop above and trim into strength; add only if catalysts are confirmed.

Catalysts to watch (2-5)

• Quarterly results and guidance: Continued sequential revenue and margin beats (next report cadence and updates after 02/01/2026 Q4 prints) — any guidance specifically calling out multi-quarter AI/hyperscaler backlog acceleration will be a major re-rate event.
• Large design-win announcements or volume ramps (hyperscaler server/storage platform orders, multi-year supply agreements) — these change revenue visibility materially.
• Share buyback cadence/size: continued and/or accelerated NCIB activity reduces share count and amplifies EPS conversion of profits.
• Margin expansion evidence: gross margin and operating margin sustainability as mix shifts toward CCS products (high-density storage/server gear).
• Macro: stable supply-chain (no material component shortages) and healthy capex trends from major cloud customers.

Risks and counterarguments

Every trade has risk - the upside here depends on continued hyperscaler demand and margin leverage. Below are the salient risks and at least one direct counterargument to the bullish thesis:

• Cyclical and lumpy demand: Hardware refresh cycles can be large but episodic. If hyperscalers pause or delay orders the company's revenue profile could reverse quickly — quarterly results have already shown sharp quarter-to-quarter moves in prior periods.
• Customer concentration: Connectivity & Cloud revenue is driven by a small number of big customers in many EMS plays. Loss or delay of a major program could materially affect revenue and margins.
• Margin pressure from competition: The space is competitive and customers drive aggressive pricing and qualification hurdles. Higher mix of lower-margin work or pricing concessions could compress gross and operating margins despite revenue growth.
• Inventory and working capital risk: Inventory was $2.05B at Q3 with current liabilities $3.50B. Rapid swings in component availability or push-outs could force inventory write-downs or working capital stress on near-term cash flow.
• Execution risk on large ramps: Scaling production for hyperscalers requires flawless execution; any manufacturing quality issues or missed delivery milestones can provoke penalties or lost future orders.
• Valuation risk: The stock already trades at a non-trivial revenue multiple (~2.9x TTM). If the market perceives the AI ramp as short-lived, the multiple could shrink quickly, wiping out gains even with steady revenue.

Counterargument (what would bulls be wrong about?)

If the AI refresh is concentrated among a very small set of suppliers and Celestica fails to convert design-wins into volume (or the wins are captured by another competitor), management's sequential progress could stall. Given customer concentration and the competitive nature of hyperscaler procurement, a single program setback could remove the core premise of sustained multi-quarter growth and margin improvement. That outcome would likely push the valuation lower and invalidate the trade plan above.

Conclusion - clear stance and what would change my mind

Stance: Long (buy within 295-315), stop under $270, targets $360 and $420. The fundamental reason is simple: Celestica has shown consistent sequential increases in revenue (Q1->Q4 2025: $2.65B -> $3.65B), rising gross profit and operating income, and is returning cash to shareholders. Those are the ingredients for a multiple re-rating if the AI/cloud mix continues to grow.

I will change my mind if any of the following occur:

• Next quarter shows a material revenue decline or guidance cut tied to lost hyperscaler programs.
• Margins deteriorate meaningfully (gross margin contraction >200 bps sequentially) without offsetting revenue growth.
• Management signals a pause or retrenchment in buybacks, indicating weaker cash flow visibility.

Monitor the next couple of quarterly prints and design-win announcements. If the revenue acceleration and margin expansion persist, the path to the stated targets is clear and the trade remains favorable; if the data turns, tighten stops and re-evaluate.

Important dates cited

• Q3 fiscal 2025 filing/acceptance: 10/27/2025 (Q3 2025 results)
• Q4 earnings release and conference call: 01/29/2026; official Q4 results printed on 02/01/2026 (EPS 1.89; revenue $3,654,900,000)

Trade with size discipline, keep the stop firm and watch the catalysts. Celestica is a play on structural AI demand and demonstrable sequential execution; at current prices this is a high-conviction swing trade candidate for those comfortable with execution and customer concentration risk.

Disclosure: This article is for informational purposes and not personalized investment advice. Always perform your own due diligence and size trades to your risk tolerance.