Celestica's AI-Driven Surge: A Strong Buy in the Next Tech Revolution

The global shift toward artificial intelligence (AI) is reshaping industries, and Celestica Inc. (CLS) stands at the epicenter of this transformation. The electronics manufacturing giant has delivered a Q1 2025 revenue surge, bolstered by AI-infused partnerships and strategic bets on hyperscaler infrastructure. With earnings momentum accelerating and institutional ownership rising, now is a critical time to assess Celestica's potential as a long-term growth play in the AI hardware ecosystem.

Earnings Momentum: A 20% Revenue Boost and Margin Breakthrough

Celestica's Q1 2025 results underscore its transition from a traditional EMS provider to a high-margin AI infrastructure leader. Revenue hit $2.65 billion, a 20% year-over-year jump, driven by its Connectivity & Cloud Solutions (CCS) segment, which grew 28% to $1.84 billion. The standout was its Hardware Platform Solutions (HPS) division, which nearly doubled in revenue (+99%) to $1 billion, fueled by hyperscaler and AI data center demand.

This growth isn't just about volume—it's about profitability. CCS margins expanded to 8.0% (vs. 6.8% in Q1 2024), lifting Celestica's adjusted operating margin to a record 7.1% (non-GAAP). Management has raised full-year 2025 guidance to $10.85 billion in revenue and $5.00 in EPS, up from prior forecasts. The upward revision reflects operational leverage in its AI-driven segments, where higher-margin custom designs are displacing commoditized EMS work.

Strategic Partnerships: AI Infrastructure's Silent Enabler

Celestica's strategic partnerships are the unsung driver of its AI boom. The company is no longer just building hardware—it's designing it. Its shift to an ODM (Original Design Manufacturer) model allows it to collaborate with hyperscalers like Microsoft, Meta, and Amazon during the product design phase. This embedded position lets Celestica command premium pricing and retain intellectual property rights, a stark contrast to its EMS past.

Key partnerships include:
1. Groq AI: Celestica is manufacturing AI/ML servers and full-rack solutions for Groq's proprietary Language Processing Units (LPUs), which specialize in accelerated inferencing. This collaboration, ramping in early 2025, positions Celestica as a leader in specialized AI chip infrastructure.
2. Hyperscaler 1.6Tb Switching: A major win with a hyperscaler for 1.6 Terabyte switching systems—critical for next-gen data centers—will begin contributing in 2026. This underscores Celestica's dominance in high-bandwidth networking, a pillar of AI scalability.
3. Custom AI Server Designs: Celestica's modular AI/ML compute platforms and advanced cooling systems are now core to hyperscalers' infrastructure strategies, with designs tailored for both training and inferencing workloads.

These partnerships are already paying off. The CCS segment now accounts for 69% of revenue, and its HPS division's 99% YoY growth signals a structural shift toward AI-driven demand.

Zacks Rank and Analyst Sentiment: A Strong Buy Signal

While current Zacks Rank data for June 2025 is unavailable, Celestica's fundamentals align with a “Strong Buy” recommendation. Analysts have upgraded price targets to $120–$140, reflecting confidence in its margin expansion and AI growth trajectory. The company's 14.5x P/E ratio trades below its five-year average, despite record margins, suggesting undervaluation.

Institutional ownership has climbed to 67.38%, with prominent investors like FMR LLC and Whale Rock Capital boosting stakes. Technical indicators also favor a bullish stance: Celestica's stock has surged 95.68% year-to-date (as of May 2025), outperforming peers like Amphenol and Foxconn.

Risks and Mitigations

• Macroeconomic Downturns: A slowdown in hyperscaler spending could pressure margins, though Celestica's diversified client base (no single client >10% of revenue) limits exposure.
• Competitor Threats: Rivals like Foxconn are ramping up AI manufacturing, but Celestica's ODM expertise and early supply chain integration provide a moat.
• Trade Tensions: Celestica's ability to pass tariff costs to clients mitigates this risk.

Investment Thesis: A 3-Year Growth Story

Celestica is uniquely positioned to capitalize on the $250 billion AI infrastructure market by 2027. Its ODM model, hyperscaler partnerships, and margin discipline create a virtuous cycle of growth:
- Short-Term (0–12 months): Q2 guidance of $2.575–2.725 billion in revenue and $1.17–1.27 EPS suggests continued momentum.
- Medium-Term (1–3 years): The Groq and 1.6Tb switching wins will scale into high-margin revenue streams, while its 800G Ethernet leadership positions it for 2026+ data center upgrades.
- Long-Term (3+ years): Celestica's AI-driven CCS segment is now a cash engine, with HPS revenue poised to triple by 2027 if current trends hold.

Final Call: Buy Celestica for the Next Tech Cycle

Celestica's Q1 results, AI partnerships, and margin expansion mark it as a best-in-class play on the AI hardware boom. With hyperscalers racing to deploy infrastructure for generative AI and large language models, Celestica's role as a trusted ODM partner is irreplaceable.

Action Item: Investors should consider accumulating Celestica at current levels, with a 3-year horizon. The stock's undervaluation relative to peers, coupled with its 7.2% adjusted operating margin guidance for 2025, suggests significant upside. For those betting on AI's next phase, Celestica is a core holding in the hardware revolution.

The next decade will belong to companies enabling AI's infrastructure. Celestica is already building it.