Is Celestica Overvalued Despite Strong AI Exposure?

The question of whether Celestica (CLS) is overvalued hinges on a delicate balance between its stratospheric price-to-earnings (P/E) ratio and the explosive growth of the AI infrastructure sector. As of January 2026, Celestica trades at a forward P/E of 47.59, a 19.87% jump from its 12-month average of 39.7. This valuation far exceeds the AI infrastructure industry average of 24.13 and even outpaces the North American electronics industry average of 24.7x. Yet, the company's role as a critical supplier to hyperscalers and its robust earnings guidance suggest that the market may be pricing in a future where Celestica's margins and cash flows justify the premium.

Valuation Realism: A Premium for AI's "Utility" Infrastructure

Celestica's elevated P/E reflects its positioning as a key enabler of AI's infrastructure boom. The company's 2026 revenue guidance of $16 billion-up from $12.2 billion in 2025-and its non-GAAP free cash flow of $500 million underscore its ability to scale alongside the AI megatrend. However, the valuation gap is stark: Celestica's P/E of 48.5x exceeds not only its peers but also its estimated fair value multiple of 46.9x. This suggests that the market is already discounting a future where Celestica's margins expand significantly.

Yet, margin expansion may be constrained. While the company's GAAP operating margin surged to 10.2% in Q3 2025 from 5.5% in the same period in 2024, management's guidance of 7.8% for 2026 implies only modest improvement. For context, mature data center providers like Equinix and Digital Realty trade at P/E ratios around 17, reflecting stable but low-margin operations. Celestica's valuation premium thus hinges on its ability to maintain high-margin AI infrastructure projects, a task complicated by its reliance on a handful of hyperscaler clients and the technical risks of its 800G and 1.6T programs.

Growth Optimism: Earnings Momentum and Analyst Hype

Celestica's earnings trajectory has fueled optimism. Its 2026 non-GAAP adjusted EPS of $8.20 represents a 39% increase from 2025, while free cash flow is expected to grow by 18% to $500 million. Analysts have upgraded their price targets multiple times in late 2025 and early 2026, with RBC Capital and CIBC raising their targets to $315, a 27% increase from October 2025. This reflects confidence in Celestica's strategic pivot toward high-margin markets like aerospace and healthtech, which could diversify its revenue base beyond hyperscalers.

However, this optimism is not universal. A November 2025 downgrade to "Hold" from "Buy" highlighted concerns that Celestica's valuation had outpaced its fundamentals. The stock's current price of CA$414.70 is 27% below its estimated fair value of CA$569.94, suggesting that the market may be underestimating its long-term potential. Yet, this discrepancy also underscores the risk of overpaying for growth in a sector where earnings can be volatile.

The Tension Between Momentum and Reality

Celestica's valuation dilemma mirrors broader trends in the AI sector. While the S&P 500's largest stocks have seen falling P/E ratios as earnings outpace price growth, AI infrastructure firms like Palantir trade at stratospheric multiples (180x P/E). This divergence highlights the sector's bifurcation: companies with proven execution (e.g., Celestica) command premiums, while speculative plays trade at extremes.

The key question is whether Celestica's growth can justify its valuation. Its 2026 revenue guidance implies a 31% year-over-year increase, but sustaining such growth will require navigating supply chain bottlenecks and maintaining its lead in AI hardware innovation. Institutional and insider buying suggest confidence, but execution risks-such as delays in 800G/1.6T programs-could erode margins and trigger a valuation correction.

Conclusion: A High-Stakes Bet on AI's Future

Celestica's valuation is a double-edged sword. On one hand, its forward P/E of 47.59 reflects a market that expects it to dominate AI infrastructure for years to come. On the other, its margin expansion potential is limited, and its reliance on hyperscalers introduces execution risks. For investors, the decision to buy or sell hinges on whether they believe Celestica can deliver on its 2026 guidance and diversify into higher-margin markets. If it succeeds, the current valuation may prove to be a bargain. If it falters, the premium could evaporate quickly.

In the end, Celestica's story is one of growth optimism priced into a stock that may or may not live up to its promise.