A 165% rally in three months. BlackBerry (TSX:BB) stock recorded this rally between November 20, 2024, and February 18, 2025. Was there any significant turnaround or a fundamental breakthrough that pushed the stock up? Or was it the artificial intelligence (AI) boom that drove BlackBerry’s stock price?
It is always important to ask why the stock rose or fell abruptly. Only when you know the reason can you make an educated guess about whether the rally is sustainable and if you should hold or sell the stock.
Behind BlackBerry stock’s 165% rally
BlackBerry had no specific fundamental breakthrough to push the stock price to such great lengths. The management sold BlackBerry’s loss-making Cylance endpoint security assets to Arctic Wolf.
This sale will reduce BlackBerry’s revenue further and will leave it with profit-making businesses of Internet of Things (IoT) and Secure Communications, both of which generate 15-17% in operating margin. It also has its Licensing business, which contributes less than 4% to its revenue but 29% towards adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Moreover, BlackBerry reported its first free cash flow in three years.
However, none of this justifies a 165% rally. The management is relying heavily on realizing its $815 million QNX backlog to drive earnings in the next five years. It expects to realize US$268 million between FY25 and FY27 and US$318 million between FY28 and FY30. A majority of these design wins are from automotive customers. The auto market is facing a downtrend as the Trump administration cancels electric vehicle (EV) subsidies.
With nothing fundamental to drive growth, the logical explanation is a short sale. The stock rallied to such lengths in a few trading days, hinting that the rally is not sustainable. Hence, stay away from buying into this rally or you will be trapped like the investors were in the 2021 short sale. BlackBerry stock price fell 13.2% last week, and more correction is likely.
This AI stock is the real deal for Canadians
If you are interested in BlackBerry because of AI and its requirement for secure communications, Celestica (TSX:CLS) is the real deal. Celestica is an electronics manufacturing service provider that manufactures servers and storage for enterprises. It also makes electronics for communications, aerospace, and other verticals, but its key growth driver was enterprises.
Enterprise revenue saw a significant jump of 44% and 26% in 2023 and 2024, respectively, as companies adopted AI. This segment generates higher profit margins. The surge in revenue and profits drove Celestica’s stock price above 1,150% in these two years. This rally was backed by fundamentals.
However, the company reported its first dip in Enterprise revenue of 10% in the fourth quarter and guided a mid-40% dip in the first quarter of 2025. It is seeing a surge in demand from the Communications vertical. It is also exposed to Trump tariff uncertainty, which has pulled Celestica’s stock down 17% in February.
Is this the end of Celestica’s rally? Given that AI investments are cyclical, consider the correction an opportunity to buy in the dip. The next round of AI investments by companies could once again drive demand from Enterprises and send Celestica stock on another rally. However, the second cycle may not be as rewarding as the first one.
Final thoughts
The AI revolution is here. The data centre and servers are seeing the initial returns. The software segment will take time to generate returns, and their returns will be long-term and more distributed based on the application. BlackBerry can only benefit from secure communications and automotive applications, which is a crowded space. However, Celestica can benefit from the development of all types of AI and networking infrastructure.
