The artificial intelligence (AI) megatrend continues to drive valuations on Wall Street in 2025 as the AI narrative is dominated by big tech giants such as Microsoft, Nvidia, Meta, and Alphabet.
However, several Canadian companies are also gaining traction in this highly disruptive segment. One such company is Celestica (TSX:CLS), with a market cap of $52 billion. In the last 12 months, the TSX tech stock has returned over 350% to shareholders and is up close to 3,000% since October 2022.
Celestica provides end-to-end supply chain solutions, including product design, manufacturing, electronics assembly, testing, and logistics services. It serves original equipment manufacturers and cloud service providers across aerospace, defence, industrial, healthcare, and communications markets through two segments: Advanced Technology Solutions and Connectivity and Cloud Solutions.
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A strong performance in Q3 2025
Celestica delivered exceptional results in Q3 2025, driven by surging demand for AI data centre infrastructure. In the last 12 months, Celestica has reported revenue of US$11.3 billion, up from US$9.6 billion in 2024 and US$8 billion in 2023. In Q3 2025, it reported sales of US$3.2 billion, up 28%, while adjusted earnings per share hit $1.58, exceeding expectations by 52%.
The technology solutions provider achieved its highest quarterly operating margin in company history at 7.6%, which indicates it benefits from operating leverage.
The Connectivity and Cloud Solutions segment drove performance, with revenue rising 43% to US$2.4 billion. Communications revenue surged 82% as hyperscaler customers ramped 800G switch deployments for AI networking infrastructure. The hyperscaler portfolio generated US$1.4 billion in revenue, growing 79% and accounting for 44% of total company sales.
Management raised full-year revenue guidance to US$12.2 billion from US$11.55 billion, representing 26% growth, while raising the earnings per share outlook to US$5.90 from US$5.50.
In 2026, Celestica forecasts sales of US$16 billion, above consensus estimates of US$15.2 billion. The company anticipates strong demand for 800G switches alongside ramps of multiple 1.6T programs in the second half.
Management expects robust growth in AI/ML compute as a next-generation custom ASIC (Application Specific Integrated Circuit) program for hyperscaler applications reaches full volume production.
Celestica announced significant capacity expansions to support customer demand through 2027 and 2028. The company is expanding its Richardson, Texas, site to produce thousands of additional AI racks annually while finalizing plans for an additional large-scale manufacturing facility in the state.
The Thailand campus continues to receive major additions to accommodate production ramps for networking and compute programs with hyperscaler and digital native customers.
Is CLS stock still undervalued?
Celestica forecasts capital expenditure to account for 2% to 2.5% of total sales in 2026, up from 1.5% in 2025. The company maintains its disciplined approach, with only 40 basis points allocated to maintenance spending.
Management expressed confidence extending into 2027, highlighting visibility to at least 40% CCS growth from awarded programs with hyperscalers and a multibillion-dollar rack-scale custom AI system for a digital-native customer, scheduled to begin mass production.
Analysts tracking CLS stock forecast adjusted earnings to expand from US$5.86 per share in 2025 to US$13.57 per share in 2028. This earnings expansion should allow the AI company to reinvest in organic growth and target accretive acquisitions.
If the TSX tech stock is priced at 35 times forward earnings, which is reasonable, it should gain 46% over the next 30 months.
