Celestica (TSX: CLS) stock has fallen over 20% since it announced a $3 billion equity offering to fund its working capital and capital expenditures. This is not the first time it has fallen on increasing capex.
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Why did Celestica stock fall despite the AI hardware boom?
Celestica stock fell 27% from January 28 to March 6, 2025, on a US$1 billion capex announcement to open design centres in Japan, Texas, and Thailand, which is almost four times its 2024 capex of US$201 million. Investors penalized Celestica, thinking it is building capacity ahead of confirmed orders from hyperscaler customers. Order cancellations could make increased capacity a liability.
However, Celestica reassured investors that most orders placed for long-lead silicon were non-cancellable and non-refundable. This gives assurance that the new capacity will be utilized. The stock surged 70% between March and April after Celestica announced a new program for networking switches for AMD’s Helios programs. The rally was offset in June as overall artificial intelligence (AI) momentum slowed.
The slowdown came as companies adopting AI revisited their token budgets and asked the difficult question of “Where is the value?” Moreover, supply chain constraints around components, especially memory chips, pulled Celestica stock down 27% in June. During the same time, memory chipmaker Micron Technology’s stock surged 40%, highlighting the supply chain paradox.
Rising demand, new order wins, supply constraints, and increasing capex have been driving Celestica’s stock momentum so far this year. At present, the stock’s year-to-date growth is flat, giving you an opportunity to buy the dip for the next growth cycle.
Celestica’s next growth cycle has real revenue
Celestica has increased its 2026 revenue guidance to $20.5 billion from $19 billion and free cash flow (FCF) guidance to $600 million from $500 million, even after $1 billion in capex.
| Particulars | 2025 | 2026* | 2027* |
| Revenue (US$ billions) | $12.40 | $20.50 | $33.80 |
| YoY Growth | 65% | 65% | |
| Operating Margin | 7.5% | 8.4% | 9% |
| Capex (US$ billions) | $0.20 | $1.00 | $1.50 |
| YoY Growth | 398% | 50% |
It has guided 2027 revenue growth of more than 65% as its new programs come online. This revenue growth is real as Celestica doesn’t fund its customer expansion, like Nvidia. In fact, customers bear the cost of specialized equipment or non-recurring expenses. The remaining risk lies with Celestica.
What will fuel revenue growth in the second half of 2026 and full year 2027?
The first-half revenue was impacted by supply chain constraints. Celestica has now secured supplies for the remainder of 2026 and 2027.
- In the second half of 2026, Celestica will ramp production of its first 1.6 Terabit programs, scale 800G volumes, especially for hyperscaler customers, and continued growth of 400G.
- In 2027, Celestica will commence initial deliveries of custom racks for OpenAI’s Jalapeño accelerator.
- Celestica will also commence production of its first major Co-packaged Optics (CPO) Ethernet switch program with an unnamed hyperscaler customer in 2027.
On top of this, Celestica is co-designing custom components for Google’s Tensor Processing Unit, possibly including server racks, networking switches, interconnects, and more.
This stock has real margins
All the above production orders are complex original design manufacturer (ODM) programs that only a select few ODMs can mass-produce. The 1.6T CPO program has technical challenges of managing signal and thermal integrity. If Celestica succeeds in mass-producing this, it will pave the way for more orders and set the platform for 3.2T CTOs. These ODM programs are high-margin products, which means operating margin could increase from 8.2% in the second quarter of 2026.
The higher-margin Connectivity and Cloud Solutions segment is gaining a larger share of the revenue pie. Within this segment, the mix of higher ODM margin from the hyperscaler portfolio is growing. Add to it operating leverage from increasing utilization of the capacity. All of it will contribute to margin.
Every growth comes with risks. The margin expansion depends on the successful scaling of the high-margin programs and utilization of capacity. Supply constraints can increase component costs, or pricing pressure from hyperscalers can slim ODM Margin. However, Celestica is addressing these challenges by securing non-cancellable, non-refundable orders and hedging supplies for 2026 and 2027.
Celestica is a risky stock at current valuations but the upcoming growth prospects could drive the stock if you are willing to wait.
