Nvidia (NASDAQ: NVDA) became the go-to stock for anyone who wanted to ride the artificial intelligence (AI) wave. Behind its success was its unbeatable high-performance graphics processing units (GPUs) used by data centres and needed to train large language models. However, one TSX stock not only rode the AI wave but also the 5G wave and beat Nvidia in the rally.
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This TSX stock beat Nvidia’s rally
Measuring stock price momentum from October 28, 2022, to February 17, 2024, Celestica (TSX:CLS) stock surged 1,143%, beating the Nvidia stock price rally of 903%. Nvidia’s stock price took a hit from the news that China has created a Chat GPT-like AI model named DeepSeek using older-generation graphic processing units.
Celestica is involved in designing, manufacturing, and providing hardware platforms and supply chain solutions for customers across verticals. It has divided the business segment into:
- Advanced Technology Solutions (ATS) for Aerospace and Defense, Industrial, HealthTech, and Capital Equipment businesses
- Connectivity & Cloud Solutions (CCS) manufacturing servers, storage, and networking solutions for Communications and Enterprises.
Its key growth driver was the CCS segment, as demand for servers and networking surged. In the fourth quarter of 2022, Celestica’s CCS revenue surged 38.9% to US$1.2 billion, with the strongest growth of 49% coming from the Enterprise segment that makes servers. Such strong revenue growth numbers in a high-margin segment drove its earnings per share (EPS) by 34.5% to $0.35. And such high earnings growth drove its stock price.
The trend repeated in Q4 2023, and the Enterprise segment reported 46% year-over-year revenue growth. The company’s overall EPS grew 35.7%. Celestica’s stock price rally was backed by high earnings growth, as it was trading at a price-to-earnings (PE) ratio of 17.5 times at the end of 2023.
Is this stock a buy now?
However, the trend reversed in Q4 2024. Enterprise segment revenue fell 10% year-over-year. Although revenue growth slowed to 19%, EPS surged 69.7%. It has guided 11.5% revenue growth for 2025 and 22.4% growth in adjusted earnings per share. The company’s revenue and earnings growth is slowing as AI spending by companies slows.
However, the stock price rally sent its PE ratio to a multi-year high of 36.6 times. On the valuation front, Celestica stock is gradually becoming expensive. While the stock could still see growth in the mid-20s, triple-digit growth is unlikely.
If you are looking for double-digit growth, Celestica is worth buying. However, the windfall gains phase is over.
