Celestica's Q2 Earnings and RBC's Outperform Rating: A Strategic Buy in the Hyperscaler-Driven Tech Revolution

Celestica Inc. (NYSE: CLS) has emerged as a standout performer in the AI infrastructure sector, with its Q2 2025 results underscoring a compelling narrative of growth, margin expansion, and strategic positioning. The company's revenue surged 21% year-over-year to $2.89 billion, far exceeding its own guidance and outpacing market expectations. Adjusted earnings per share (EPS) jumped 54% to $1.39, driven by robust demand from hyperscalers and operational leverage. These figures, coupled with RBC Capital Markets' upgraded “Outperform” rating and $225 price target, raise a critical question: Is Celestica's growth sustainable in the face of evolving AI demand and supply chain volatility?

A Deep Dive into Q2 Performance

Celestica's Q2 results reflect a company in sync with the AI revolution. The Connectivity & Cloud Solutions (CCS) segment, which accounts for 72% of revenue, delivered a 28% year-over-year increase to $2.07 billion. This was fueled by surging demand for 800G networking equipment and custom ASIC servers from hyperscalers, who are racing to build out AI infrastructure. The Advanced Technology Solutions (ATS) segment, while growing more modestly at 7% to $820 million, demonstrated resilience in industrial and defense markets.

Margin expansion was equally impressive. GAAP operating margins hit 9.4%, up from 5.6% in Q2 2024, while non-GAAP adjusted margins rose to 7.4%. This improvement was driven by cost discipline, higher pricing power in high-margin segments, and a favorable revenue mix. Celestica's ability to convert top-line growth into bottom-line gains is a testament to its operational rigor—a rare trait in the contract manufacturing sector.

AI-Driven Demand and Supply Chain Resilience

The sustainability of Celestica's growth hinges on two pillars: the longevity of AI-driven demand and the durability of its supply chain advantages. Hyperscalers are investing heavily in AI infrastructure, with Celestica uniquely positioned to benefit. Its partnerships with leading cloud providers and its expertise in designing and manufacturing custom compute hardware give it a first-mover advantage. For instance, Celestica's next-gen AI/ML custom compute contracts are expected to drive CCS Enterprise growth in Q4 2025, signaling long-term tailwinds.

Equally critical is Celestica's supply chain agility. Unlike competitors reliant on single geographic hubs, Celestica's global footprint—spanning North America, Asia, and Europe—allows it to navigate disruptions and optimize costs. This diversification, combined with its best-in-class execution at scale, has enabled record margins and market share gains in high-performance networking. RBC analysts note that 800G volumes are projected to exceed 50% in the second half of 2025, further cementing Celestica's role in the AI ecosystem.

RBC's Outperform Rating: A Vote of Confidence

RBC Capital's upgraded rating reflects confidence in Celestica's ability to outperform peers. The firm raised its 2025 revenue forecast to $11.55 billion and adjusted EPS to $5.50, with 2026 and 2027 estimates now at $13.3 billion and $15.8 billion in revenue, respectively. These projections assume continued AI adoption and Celestica's ability to capture incremental market share. RBC also highlighted the company's capital return initiatives, including a $40 million share repurchase in Q2, as a value driver for shareholders.

The firm's price target of $225 implies a 35% upside from current levels, a premium valuation that RBC justifies with Celestica's improving revenue mix and competitive moat. While skeptics may question the sustainability of such high growth, the company's raised full-year guidance and strong order backlog suggest demand is not only robust but accelerating.

Investment Implications

Celestica's Q2 results and RBC's upgraded rating present a compelling case for investors seeking exposure to the AI infrastructure boom. The company's supply chain expertise, global reach, and strategic alignment with hyperscalers position it to outperform in a sector where margins and market share are key differentiators. However, risks remain, including potential overvaluation and cyclical swings in AI spending.

For those willing to tolerate short-term volatility, Celestica offers a rare combination of near-term growth and long-term strategic value. The stock's forward P/E ratio of 22x (as of August 2025) appears justified given its 2025 EPS guidance and the potential for margin expansion in AI-driven segments.

Conclusion

Celestica's Q2 performance and RBC's bullish stance underscore its role as a linchpin in the AI infrastructure revolution. With demand from hyperscalers showing no signs of slowing and its supply chain advantages providing a durable edge, the company is well-positioned to deliver sustained growth. For investors, the current valuation offers an opportunity to capitalize on a business that is not only riding the AI wave but shaping it. As the tech sector evolves, Celestica's strategic execution and operational discipline make it a standout buy in the hyperscaler-driven era.