Hook + thesis
Shares of Celestica have had a volatile run: strong momentum into 2025 around AI and data-center demand, then a sharp pullback. Some of the weakness is being attributed in market chatter to a hyperscaler - most often Alphabet in the rumor mill - looking to diversify its supply base. If that’s true, it’s not the disaster sellers are positioning it to be. In fact, losing or not winning a single hyperscaler contract at a time when Celestica is showing improving margins, consistent cash generation, and a buyback program can be a net positive for near-term returns and for de-risking the growth narrative.
The trade idea, up front
- Trade direction: Long (swing).
- Entry: 270 to 295 (look to scale in; current prints in the high 280s to low 300s).
- Stop: 250 (hard stop - breach suggests broader sentiment deterioration).
- Targets: First target 340 (near prior multi-week highs), second target 380 (re-test of 52-week high area and data-center re-rating).
- Time horizon: 1-3 months (swing).
- Risk sizing: Position size so the stop loss corresponds to no more than 1.5-3% of portfolio capital.
Why the market should care - business overview
Celestica provides supply-chain and electronics manufacturing solutions across two segments: Advanced Technology Solutions (ATS) - which includes aerospace, defense, health tech, and capital equipment - and Connectivity & Cloud Solutions (CCS) - which houses communications, servers, and storage for enterprise and hyperscale customers. The company generates a majority of revenue from its CCS segment, so it sits squarely in the path of data-center and AI infrastructure spending cycles.
Key fundamental snapshot (most recent quarter ended 09/30/2025)
- Revenue: $3.194 billion (Q3 FY2025).
- Gross profit: $416.1 million - implying a gross margin of about 13.0%.
- Operating income: $325 million - operating margin roughly 10.2%.
- Net income: $267.8 million; diluted EPS of $2.31 on ~115.9 million diluted average shares.
- Operating cash flow: $126.2 million; investing cash flow: -$37.3 million; financing cash flow: -$96.8 million (Q3).
- Balance sheet: assets $6.6067 billion; liabilities $4.5781 billion; equity $2.0286 billion; inventory $2.0467 billion.
Those are not toy numbers. Celestica is profitable at scale with mid-teens gross leverage in its hardware business and operating margins above typical contract manufacturing peers in many cycles. Cash flow from operations has been consistently positive across the three most recent quarters in the dataset (Q1: $130.3M, Q2: $152.4M, Q3: $126.2M). Financing outflows are consistent with buybacks or debt paydown.
Valuation framing
The dataset does not contain a direct market-cap line. Using the latest consolidated diluted average share count in the quarter (about 115.9 million) and a recent market print around $291.85, a ballpark market-cap is approximately $33.8 billion (this is an estimate using available data). Valuation looks stretched on the most conservative annualization but compresses fast if you accept better-than-seasonal Q4 performance or near-term margin expansion.
To illustrate: summing reported net income for Q1-Q3 FY2025 gives $565 million. If you annualize that (12-month run-rate), you get around $753 million of implied net income and a price-to-earnings ratio in the mid-40s versus the approximate market cap. If instead you annualize the stronger Q3 run-rate (Q3 net income annualized x4), implied net income would be roughly $1.07 billion and P/E moves toward the low-30s. Bottom line - the market is placing a premium on continued hyperscaler-led growth and product-cycle improvement. That premium can compress quickly if a single large customer decision is interpreted as a setback, which explains the volatility.
Why Alphabet looking elsewhere is not a death knell
First, hyperscaler procurement is large but rarely all-or-nothing. Hyperscalers spread capacity and suppliers across partners to de-risk supply chains. Losing or not winning an incremental order from one hyperscaler can reduce revenue growth expectations but also reduce future capital intensity and concentration risk. That makes the earnings stream more predictable, improves free cash flow conversion and gives management room to repurchase shares under the Normal Course Issuer Bid referenced in the company's January announcement (Q4 results call scheduled 01/29/2026).
Second, Celestica’s margins and cash flow are already solid. Q3 showed operating income of $325 million on $3.19 billion revenue - operating margin north of 10%. Inventory sits at $2.0467 billion, and current assets of $5.1428 billion versus current liabilities of $3.5023 billion give the company liquidity headroom to navigate customer reshuffles. In short, the balance sheet and operating profitability make a temporary revenue miss manageable and increase the probability that capital returns accelerate rather than slow.
Catalysts (what will move the stock)
- 01/29/2026 Q4 FY2025 results and management commentary - this is the near-term calendar catalyst.
- Proof points on SD6300 platform adoption or other AI/storage wins - product-level evidence that Celestica participates in the hyperscaler upgrade cycle.
- Normal Course Issuer Bid execution - visible buyback activity reduces share count and supports EPS.
- Order book disclosures showing diversification across hyperscalers and enterprise cloud customers - reduces concentration risk.
Actionable trade mechanics - entry, stop, targets and rationale
The technical and fundamental picture supports a tactical long with a disciplined stop. Enter between 270 and 295 to capitalize on the recent pullback and improved operating profile. Use 250 as a hard stop - a clear break below that level would indicate the pullback has broadened beyond a single customer shakeout and into a sentiment-led selloff.
First upside target 340 - this is a conservative swing target near recent resistance and consistent with a re-rating if management signals ongoing AI-related demand. Second target 380 - an aggressive target that assumes the company reconfirms hyperscaler exposure and buybacks accelerate.
Risks and counterarguments
- Concentration risk: If Celestica materially depends on a single hyperscaler for a large portion of future revenue, a contract loss or delay would hit revenue and margins and could force more conservative capital allocation.
- Order timing and cyclicality: AI/data-center orders can be lumpy and tied to server/storage refresh cycles. Even if demand is structurally strong, timing mismatches can produce quarters of weakness.
- Supply-chain costs and inventory risk: Inventory is elevated at $2.05 billion; if end-market demand cools, markdowns or inventory write-downs could pressure margins and working capital.
- Valuation premium: The market appears to price a premium for AI exposure. If growth disappoints, the stock could see multiple compression rather than just a revenue re-acceleration setback.
Counterargument: You could reasonably argue that a hyperscaler - particularly one as large as Alphabet - deciding to shift sourcing is a negative sign for the whole supply chain and could presage weaker multi-year server/storage spending. If that narrative proves true and Celestica loses not just incremental orders but multi-year engagements, the stock needs to be repriced down.
That is a valid scenario. The difference between my constructive trade and that bearish view is focus on timing and diversification: the company’s cash-generation, margins, and buyback program provide a bridge while management executes on other customers and product wins. If management’s Q4 commentary signals multi-quarter revenue erosion from a major hyperscaler, I would exit earlier than the stop and reassess.
What would change my mind
- Near-term: Q4 results (01/29/2026) showing sharp margin deterioration or negative operating leverage would invalidate the trade thesis.
- Medium-term: documented loss of several multi-year engagements or a material inventory write-down would force a reassessment to neutral/negative.
- Positive triggers: stronger-than-expected order book, public design wins for SD6300 in AI applications, or accelerated buybacks would strengthen the long case and justify increasing exposure.
Conclusion
Celestica is not a speculative vapor-ware story; it is a profitable, cash-generative OEM with clear exposure to the AI and data-center upgrade cycle. That exposure is why the stock ran, and the same exposure is why rumors about a hyperscaler looking elsewhere suck volatility into the name. For investors willing to take a measured swing trade, the recent pullback offers an entry where downside is definable and upside includes both operational re-rating and buyback-driven EPS accretion. Keep position sizing disciplined, watch the 01/29/2026 Q4 call closely, and use a hard stop at 250. If results show sustained customer losses or material inventory deterioration, step aside.
Disclosure: This is not financial advice. The trade idea is informational and reflects a tactical, short- to mid-term view rather than a long-term buy-and-hold recommendation.