Celestica (TSX:CLS) has been on an impressive run. Over the past 12 months, CLS stock has surged more than 433%, making it the top performer on the S&P/TSX Composite Index. Moreover, the stock has grown at a compound annual growth rate (CAGR) of 195.8% in the last three years, delivering capital gains of 2,494.6%. This massive rally in the shares of this Canadian company is tied to the artificial intelligence (AI) boom.
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Celestica is capitalizing on the AI boom
Notably, Celestica is not a pure AI company, but it has positioned itself as an essential player in the AI infrastructure space. The company specializes in design, manufacturing, hardware platforms, and supply chain solutions, serving customers across a wide range of industries. It operates through two main divisions. The Advanced Technology Solutions (ATS) segment caters to aerospace and defence, industrial, healthcare technology, and capital equipment. Meanwhile, the Connectivity & Cloud Solutions (CCS) division is focused on communications and enterprise markets.
It is the CCS segment that has been powering Celestica’s growth. As hyperscale customers rush to expand their infrastructure for AI-driven workloads, demand for networking products has skyrocketed, propelling Celestica’s top-line growth and share price momentum.
Celestica’s recent financial results reflect the solid demand trends. In the second quarter, Celestica reported revenue of US$2.9 billion, a 21% year-over-year increase. Much of this growth stemmed from the CCS segment, which accounted for 72% of total revenue. Communications end market revenue jumped 75%, thanks to robust demand in the company’s hardware platform solutions (HPS) networking business, alongside growing momentum in its optical programs. Earnings followed suit, with adjusted earnings per share (EPS) climbing 54% to US$1.39.
Where might Celestica be in 3 years?
Much of the stock’s future trajectory will depend on the sustainability of AI-driven demand and the company’s ability to capitalize on it. For its CCS segment, management is guiding for revenue in the communications market to grow at a brisk pace, driven by solid demand for networking switches. Strong momentum in both 400G and 800G programs, particularly with hyperscaler customers, is likely to support this growth. These customers continue to expand their data centres, creating a durable tailwind for Celestica.
The enterprise market also holds promise. In the third quarter, Celestica will begin ramping volumes for a next-generation AI/ML compute program with a large hyperscaler, with meaningful contributions expected through 2026. Management sees further opportunities across compute, storage, and rack integration as digital-native and hyperscaler clients expand their infrastructure footprints.
Its ATS segment will also contribute meaningfully to its growth. Industrial programs that ramped in the second quarter are expected to remain strong through year-end, while the aerospace and defence unit is seeing profitability improve as the company exits lower-margin contracts.
While tariffs remain a challenge, the company expects to recover most of these costs from customers, minimizing any impact on earnings.
With AI adoption accelerating, hyperscaler investments expanding, and secular tailwinds across its portfolio, Celestica appears well-positioned to sustain momentum despite broader macro uncertainty.
In short, Celestica offers a compelling case for investors as the AI boom is still in its early innings. Even though the stock may not replicate its astonishing gains of the past three years, it still has plenty of room to climb.
Assuming that CLS stock grows at a CAGR of around 30%, far below the triple-digit gains of recent years, the share price could more than double from its September 5 closing level of $336.26 to approximately $738.76 within three years.
