Nvidia (NASDAQ:NVDA) has become synonymous with artificial intelligence (AI). Its graphic processing units (GPUs) have fueled the AI revolution, driving massive demand and propelling its stock to new heights. However, Nvidia stock recently faced a pullback after the Chinese startup DeepSeek unveiled its R1 AI model—a high-performing large language model (LLM) built at a significantly lower cost. This breakthrough has sparked concerns about the long-term demand for Nvidia’s costly high-performance AI chips, which remain at the core of its business.
Despite this recent dip, Nvidia has delivered incredible returns over the past five years, and its fundamentals remain solid. However, for investors who may have missed the Nvidia wave, there’s still ample opportunity in the AI sector. Against this backdrop, here’s my favourite AI stock to buy and hold. Moreover, this stock has the potential to thrive even as more cost-efficient AI models emerge.
My favourite AI stock
Among the top AI stocks, Celestica (TSX:CLS) is my favourite. The company offers design, manufacturing, hardware platform development, and supply chain solutions. It operates through two primary segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS).
The ATS segment covers industries such as aerospace and defence, industrial, health tech, and capital equipment, including its semiconductor, display, and robotics businesses. Meanwhile, the CCS segment focuses on communications and enterprise markets, including areas like servers and storage. This diversified approach ensures that Celestica remains relevant across multiple high-growth industries.
Celestica has delivered solid financial results over the past year thanks to the momentum in its AI business. In 2024, the company generated $9.65 billion in revenue, marking a 21% increase year over year. Its adjusted earnings per share (EPS) surged by 58% to $3.88. This growth was largely driven by solid demand from Hyperscaler customers in its CCS segment, particularly in networking products within its Hardware Platform Services (HPS) business.
This Canadian stock’s performance has reflected these strong fundamentals. Celestica stock has soared over 255% in one year, significantly outpacing Nvidia’s about 82% gain. With AI adoption accelerating across industries, Celestica’s momentum appears far from over.
Thanks to its solid financials, Celestica stock has gained significantly in value and outperformed Nvidia stock over the past year. It has gained 282% in one year, beating Nvidia’s gain of 80%.
Looking ahead, Celestica’s business momentum will likely continue, driven by the strength of its AI platform and diversified portfolio.
Catalysts supporting Celestica stock
Celestica is benefiting from strong demand across its CCS portfolio, particularly in data centre hardware, which has a promising multi-year growth trajectory.
Despite the emergence of DeepSeek’s-R1 large language model, Celestica’s management remains confident that this shift will have a neutral to positive impact on its business. Its AI/ML compute segment is well positioned for growth, with compute solutions primarily built around custom ASIC (Application-Specific Integrated Circuit) designs. These specialized chips are optimized for performance and power efficiency in targeted applications. Existing programs and new contract wins—set to ramp through 2025 and 2026—are strategically aligned with customer needs, regardless of advancements in general-purpose large language models.
Additionally, Celestica’s networking business, a key driver of its Hyperscaler revenue, is poised to benefit significantly from AI adoption. As AI training costs decline, the demand for high-bandwidth, low-latency networking infrastructure is expected to rise, further driving demand for Celestica’s networking products.
Management has also signalled strong ongoing demand for AI-driven data centre investments, and the company continues to engage with both new and existing customers. Celestica recently secured two significant new contracts that will further enhance its AI system design capabilities and strengthen its position in the AI infrastructure market.
While Celestica is poised to deliver solid growth, its stock trades at the next 12-month (NTM) price-to-earnings (P/E) ratio of 26.8, considerably lower than Nvidia’s forward multiple of 33.4. Additionally, Celestica’s NTM enterprise value-to-sales (EV/sales) multiple stands at 1.4, representing a substantial discount compared to Nvidia’s EV/sales ratio of approximately 18.
Celestica’s high growth potential, resilience to the emergence of low-cost LLMs, and low valuation make it a compelling stock in the AI space.
