Celestica’s AI Hardware Play: Why the Market is Underestimating This Hidden Gem

The market’s radar is buzzing with AI stocks—Nvidia, AMD, and cloud giants dominate the headlines. But one name lurking in the shadows is quietly capitalizing on the AI boom in a way few investors appreciate: Celestica (CLS). This electronics manufacturing powerhouse isn’t just a supplier; it’s a critical partner in building the hardware that fuels AI’s future. And the stock price? It’s barely keeping up with the NASDAQ. Let’s unpack why this disconnect exists—and why it might not last.

The Invisible AI Player

Celestica isn’t an AI software company. It’s the unsung hero behind the hardware that makes AI possible. Think of it as the architect of AI’s backbone: designing and manufacturing the servers, storage systems, and ultra-fast networking gear that hyperscalers like Microsoft, Meta, and Amazon rely on to power their AI models. While investors chase generative AI stocks, Celestica is quietly cashing in on the infrastructure these systems depend on.

Q1 2025 Results: A Sneak Peek at AI’s Economic Impact

The numbers tell a story of explosive growth tied to AI demand:
- Hardware Platform Solutions (HPS), a subset of its Connectivity & Cloud Solutions (CCS) segment, saw revenue skyrocket by 99% year-over-year to $1.0 billion in Q1. This segment builds the custom hardware for hyperscalers’ AI data centers.
- The CCS segment as a whole grew 28% YoY, hitting $1.84 billion, with margins expanding to 8.0%—a 1.2 percentage-point jump from Q1 2024.
- Celestica raised its full-year revenue guidance to $10.85 billion (up from $10.7 billion) and EPS to $5.00, citing “strengthening demand from hyperscaler, AI, and data center customers.”

The key takeaway? AI infrastructure spending is fueling a margin and revenue tailwind that’s underappreciated in the stock’s valuation.

Why the Market Misses It

Celestica isn’t getting the credit it deserves for two reasons:
1. Lack of AI-Specific Reporting: The company doesn’t isolate AI revenue in its disclosures. The growth is buried in the CCS segment, which also includes non-AI enterprise and telecom projects. Investors who don’t dig deeper might miss the AI-driven surge in HPS.
2. Perception as a Commodity Player: Celestica is often seen as a low-margin contract manufacturer. But its shift to Original Design Manufacturer (ODM) partnerships—with hyperscalers co-designing custom AI hardware—has unlocked premium pricing and higher margins.

The AI Infrastructure Play

Celestica isn’t just building servers; it’s enabling hyperscalers to cut costs and boost efficiency with bespoke AI infrastructure. For example:
- 400G/800G Ethernet switches: These ultra-fast switches are critical for training large language models, where data transfer speed directly impacts training efficiency.
- Liquid cooling systems: As AI chips grow more power-hungry, Celestica’s cooling solutions are becoming table stakes for hyperscalers.
- Full-rack AI solutions: Celestica designs entire data center racks optimized for AI workloads, reducing integration costs for customers.

The company’s partnership with STORDIS—a leader in open networking distribution—expands its reach in Europe, where hyperscalers are scaling AI infrastructure aggressively.

The Catalysts Ahead

• Hyperscaler CapEx Cycles: Microsoft, Meta, and others are still in the early stages of AI hardware buildouts. Celestica’s pipeline is positioned to benefit as these companies ramp up spending.
• Margin Expansion: The CCS segment’s margins hit a record 8.0% in Q1, and the company expects further leverage in 2025.
• Market Recognition: As investors start to parse the AI hardware supply chain, Celestica’s role in it could finally get its due.

Risks to the Thesis

• Supply Chain Volatility: Component shortages or trade tensions (e.g., China-U.S. tariffs) could disrupt production.
• Competition: Traditional OEMs like Dell or Foxconn could challenge Celestica’s ODM niche.

Conclusion: A Hidden Gem with Catalysts in Sight

Celestica is a prime example of an underappreciated AI beneficiary. Its 99% HPS revenue surge, 28% CCS growth, and margin improvements all tie directly to AI’s infrastructure needs. While the stock has lagged the NASDAQ over the past year, the catalysts ahead—hyperscaler spending, margin upside, and potential re-rating—suggest this could change.

Investors who miss Celestica’s role in AI’s hardware ecosystem are missing a critical part of the story. With a forward P/E of ~21 (vs. 26 for the NASDAQ) and a valuation that doesn’t yet reflect its AI tailwinds, CLS could be a buy for those willing to look beyond the obvious AI stocks.

The AI revolution isn’t just about algorithms—it’s about the hardware that makes them possible. And Celestica is building it.