The day was July 31, 2026. Telus Corporation (TSX: T) stock nose-dived 14.5% after the company slashed its dividend by 55% and made some long-term adjustments to its dividend policy. Among the three noteworthy changes in dividend policy were:

• Pausing dividend growth until the share price revives.
• Pulling forward the end of the 2% dividend reinvestment plan (DRIP) discount from the end of 2028 to October 1, 2026.
• Reducing the long-term dividend payout target to 45–60% of free cash flow (FCF) from 60–75%.

Interestingly, it has reduced its 2026 FCF guidance from $2.45 billion to $1.8 billion. Even if the company increases FCF by 10% annually for the next two years, it will reach $2.2 billion by 2028. This shows that the Telus of 2025 is a thing of the past.

Telus looks to find solid ground

In 2026, Telus is looking to stabilize its capital structure and revive its balance sheet while catching up with artificial intelligence (AI). The desperation to find solid ground in the avalanche of technology upgrades and regulatory changes is visible.

Telus began a phased rollout of its 3G network in Manitoba starting December 31, 2025, and plans to shut down the network nationwide by March 1, 2027. The old has to go to make way for new 4G and 5G networks.

It acquired Telus Digital for US$539 million in October 2025 for its recurring cash flow from SaaS services. However, it impaired $2.1 billion in goodwill in the second quarter of 2026, when a portion of that very cash flow became irrecoverable due to AI adoption.

Telus is now looking to invest in AI and satellite broadband to participate in the next generation of communication networks. This disruption and recreation is a normal lifecycle for telcos, like a phoenix rising from its ashes. BCE faced a similar situation in 2025. It stood its ground and continued its biggest restructuring from telco to techno.

The next chapter for Telus is yet to begin

Telus will write the next chapter in its journey over the next three years. The management that monetized the 3G and 4G network has retired. The company now has a new CEO, Victor Dodig, and a new CFO, Gopi Chande.

The new management will lay the blueprint for Telus’s next chapter in the third-quarter earnings call in November. Until then, Telus floats on murky water. The dip in the stock price after the dividend cut might look like an attractive opportunity.

However, Telus is not yet out of the tunnel, and ideas are still being brainstormed. It has already revised its capital plan twice in six months. I won’t be surprised if there is another revision in the third-quarter earnings, the one planned by the new management.

Is Telus stock worth buying now?

For now, I suggest holding off on buying Telus stock until the company presents a stable capital plan and sticks to it for at least six months. Its average revenue per user (ARPU) is declining owing to the regulatory change that allowed mobile virtual network operators like Cogeco Communications (TSX: CCA) to access Telus and BCE networks.

Instead of Telus, Cogeco is a better dividend stock to buy. Cogeco has a 30% dividend payout ratio. It is in a better position to manage falling ARPU because of its asset-light business model. Unlike Telus and BCE, which are chasing AI and satellite communication, Cogeco is building the tried-and-tested wireless data, upgrading from wireline broadband.

Between Telus’s 5.6%, BCE’s 5.3%, and Cogeco’s 6.6% dividend yield, Cogeco’s is the safest, as it is already at a dividend payout ratio of around 40%. BCE and Telus had to halve their dividends to reduce their payout level to 40%. Moreover, Cogeco still has room to grow dividends, depending on the traction of its wireless data business.

The post Telus Cuts Its Dividend: Is the Stock Worth Buying Now?  appeared first on The Motley Fool Canada.

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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Cogeco Communications and TELUS. The Motley Fool has a disclosure policy.

The artificial intelligence (AI) data centre boom is driving several utility and construction stocks up as demand for electricity increases. These power-hungry buildings need electricity and cooling, which drove several utility and energy stocks upwards. The only upside in AI data centres one can see is from chip companies and electricity utilities as they sign long-term power purchase agreements with hyperscalers.

Why utility stocks may not sustain data centre upside

However, utility stocks may not be an ideal investment for those looking to gain from data centre upside. Note that utility companies face regulatory delays in getting approvals for capital expenditure and the base rate they can charge for their services. In an inflationary environment, these delays cost the utility more, slimming their margins.

Each utility has to get approval from the provincial regulator. Thus, you will see abrupt growth in utility stocks. The growth vanishes when one set of approvals is followed by another set of delays, offsetting the increased revenue from new rate approvals.

This dividend stock has data centre upside

If not growth from chip stocks, or dividends from utility stocks, where should you look for AI-related dividends?

The telco turning into techno: BCE (TSX: BCE). BCE’s strength lies in building and monetizing nationwide infrastructure. If we look at the history, Bell Canada’s origins date back to the inventor of the telephone, Graham Bell, himself. With over 150 years of operations and countless restructurings, BCE has always been at the top of communication technology.

It is undergoing another restructuring, a complete revamp of its business from telco to techno. This time, the technology upgrade is not just 5G. BCE is building an AI fabric, which comprises data centres, cloud, integration services, and cybersecurity. This sovereign AI infrastructure will help Canada keep its data and AI within the nation.

How the data centre fits into BCE’s dividend model

Now, BCE provides returns largely through dividends. It has been paying dividends for 27 years and grown them in 23 of those years. The last time BCE slashed dividends was in 2000 after the dot-com bubble burst and in 2008 after the Global Financial Crisis. This is because BCE’s infrastructure is capital-intensive and the company relies on debt to fund it.

This time, BCE slashed dividends as regulatory change forced it to open its network to competitors at a wholesale price determined by the regulator. As the return on investment from fibre infrastructure fell, the telco is now moving to the next leg of growth, AI.

Speaking of AI, Nvidia (NASDAQ: NVDA) chief executive officer Jensen Huang talked about computing becoming a utility like natural gas and electricity. He described graphics processing units (GPUs) as an alternate asset class; an asset-backed security (ABS) with GPUs as the underlying asset. The ABS will carry high yield and have a rapid amortization schedule, considering the fast depreciation of GPUs. A GPU-backed debt instrument will make capital investment tradable.

BCE has not considered the ABS approach. However, the concept of making AI infrastructure a utility does show opportunity for BCE to monetize the AI fabric for regular dividends. Selling AI services to enterprises and leasing cloud space are among the AI services offered by BCE.

The telco is building a $1.3 billion AI data centre in Saskatchewan. It expects to generate $500 million in annual revenue and $400 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of 2027. If it can achieve this, the EBITDA can pay off the data centre in three years, leaving the remaining four years to make profits and accumulate capital for another upgrade.

What to expect from this stock?

The initial years will see increasing capital in AI opportunities and declining revenue from the telecom business. The free cash flow being diverted into building the AI fabric could pause dividend growth for the next three years. Moreover, BCE’s focus will be on reducing the debt it took to build 5G infrastructure before the regulator hijacked its pricing power.

Once the AI fabric is fully operational and debt is within acceptable levels of 3 times adjusted EBITDA, dividend growth could return. Until then, it is a stock to hold for its 5.4% annual yield.

The post This Canadian Dividend Stock Has Data Centre Upside I Didn’t Expect appeared first on The Motley Fool Canada.

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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Nvidia. The Motley Fool has a disclosure policy.

I don’t really see artificial intelligence (AI) as a trend where only the biggest tech stocks will win. In fact, some of the most interesting AI-linked opportunities could come from companies using this technology to solve very specific problems that businesses are already willing to spend money on. That is what makes Canadian companies like Kinaxis (TSX: KXS) really appealing for me.

Instead of trying to compete across every corner of AI, this Canadian software firm is focused on making complex global supply chains easier to plan and manage. That matters because manufacturers across the globe are constantly dealing with changing demand, inventory decisions, production schedules, and disruptions that could quickly become costly. If AI can help them make those decisions faster and with greater confidence, there is a clear reason to adopt it. And Kinaxis is already seeing encouraging signs that customers are responding to that approach.

In this article, I’ll explain why Kinaxis’s niche AI strategy appears to be paying off and what it could mean for the stock’s long-term growth potential.

Kinaxis stock

For a little background, this Ottawa-based company provides supply chain planning and orchestration software through its AI-infused Maestro platform. Its technology helps customers connect planning, forecasting, inventory management, scheduling, and execution across complex operations.

Following the 33% rally over the last six months alone, Kinaxis stock currently hovers around $172 per share with a market cap of $4.7 billion.

Part of its strong momentum could be due to its improving business performance and continued customer adoption. In the second quarter of 2026, Kinaxis’s total revenue climbed 16% year-over-year (YoY) to US$158.8 million. Its Software-as-a-Service (SaaS) revenue jumped 20% YoY to US$106.5 million, while annual recurring revenue surged 19% from a year ago.

As a result, the company’s profits improved by 15% YoY in the latest quarter to US$21.2 million. Meanwhile, its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 23%, while adjusted EBITDA margin expanded to 26% from 25%.

The bigger AI opportunity

Beyond its strengthening financials, Kinaxis’s niche AI strategy makes it an even more appealing stock to consider today. Notably, Kinaxis is expanding its Maestro platform beyond planning into what it calls operational orchestration. The company is developing AI agents that could connect data, decisions, workflows, and actions across supply chains. At the end of June, about 10% of its installed customer base was already using Maestro Agents through paid or trial subscriptions.

Kinaxis’ recent customer wins improve its long-term growth outlook further. In August, Italian power-generation technology firm Ansaldo Energia selected Maestro to improve visibility and coordinate its complex global supply chain. Similarly, Sterlite Technologies also chose Kinaxis Planning One to strengthen supply chain planning across its global operations.

Focus on sustainable AI-linked growth

More importantly, Kinaxis isn’t chasing AI demand blindly. A Kinaxis-sponsored International Data Corporation study found that 52% of supply chain leaders viewed trust in AI-driven decisions as a major barrier to faster adoption, while only 12% had fully embedded AI planning governance. Kinaxis is addressing that gap by focusing on explainable and auditable AI inside Maestro.

The company’s confidence is showing up in its outlook as well as it recently raised its 2026 total revenue guidance to US$625 million to US$640 million and now expects SaaS revenue growth of 18% to 20%.

For long-term investors, that combination of recurring revenue growth, specialized AI tools, and expanding enterprise adoption makes Kinaxis even more attractive today.

The post Kinaxis’s Niche AI Strategy Is Paying Off appeared first on The Motley Fool Canada.

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Fool contributor Jitendra Parashar has positions in Kinaxis. The Motley Fool recommends Kinaxis. The Motley Fool has a disclosure policy.

The third quarter from June to August has not been a good one for Celestica (TSX: CLS). Its stock price fell a little over 37%. But I am not worried about it at all. The dip is a correction following the closing of the equity offering of $3 billion. The company has raised equity capital to fund working capital needs and expand its design and manufacturing capacity.

Why I am not worried about this stock’s 37% drop

This year, Celestica is manufacturing its first 1.6 Terabit programs for hyperscaler customers. From here on and for the rest of 2027, it has multiple design programs for several named and unnamed hyperscalers. The ones that have been made public are OpenAI, Advanced Micro Devices, and Google.

Concerns around equity dilution will be outweighed once the revenue from hyperscalers flows in. The components Celestica is designing and manufacturing for them are high-margin products with an original design manufacturing (ODM) premium. These components have technical challenges. If Celestica succeeds in manufacturing them successfully, it could attract orders from other hyperscalers. The earnings per share (EPS) growth may far outweigh the EPS dilution from the equity offering.

What is keeping investors wary?

Other than equity dilution, investors are reluctant to buy Celestica stock at its current price of $426 because of supply chain risks. The shortage in memory chips has slowed order execution. However, the management has clarified that it has secured sufficient supply to meet the existing order book. Moreover, the escalating tariff war has made investors cautious.

Based on current ongoing programs, Celestica expects 2027 revenue growth to surpass 65% in 2026. A 2.3 times price-to-sales ratio looks like a bargain for revenue growth above 65%.

The low valuation comes as Celestica has not yet successfully delivered the 1.6T switches. The product not only has to run successfully, but its performance should turn the eyes of its users. ODMs market their products by enhancing their clients’ computing performance. Another risk is revenue concentration, with more than 60% of revenue coming from three customers. It could face “pricing pressure” from hyperscalers, making it compromise on margins for volumes.

While these short-term headwinds will keep the stock volatile, its long-term growth prospects make it a buy-and-hold.

What long-term investors should know about Celestica?

Celestica is an ODM that designs components and secures patents. Hyperscalers use its designs and components and rebrand them. Celestica’s journey from third-party manufacturer to ODM was fueled by the growing need for networking equipment. I would say growing trade protectionism has led to the emergence of ODMs in North America, as top ODMs are concentrated in Taiwan and China, from Foxconn to Pegatron.

Investing purely based on success stories can create a false expectation of returns. ODMs are about securing patents, and that is not easy. The component has to deliver enhanced performance compared to the standard available in the market. The risk of failure is high.

Take, for instance, Google’s tensor processing unit (TPU). Google uses Nvidia’s graphics processing units (GPUs) for its AI infrastructure. However, it is also building its custom TPU for certain AI workloads. This TPU needs a specific configuration of rack space, Ethernet switches, and other components, and Celestica provides that.

ODMs like Foxconn and Pegatron became world-famous names after being associated with Apple. Celestica is still in its growth stage and gaining popularity by building custom racks for OpenAI’s Jalapeño accelerator. It is going beyond just Ethernet switches and rack space to design and build other components.

Technological developments can make Celestica a long-term wealth builder for patient investors. However, you should be mindful that not all ODM designs will be a success. Therefore, investors should view Celestica as a long-term, cyclical growth play.

The post Why I’m Not Worried About This Stock’s 37% Drop appeared first on The Motley Fool Canada.

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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Advanced Micro Devices, Alphabet, Apple, Celestica, and Nvidia. The Motley Fool has a disclosure policy.

The global artificial intelligence (AI) spending boom has sent stock markets into a frenzy, but lasting gains may accrue to sustainably profitable and cash flow positive growth stocks. Canadian investors scanning the Toronto Stock Exchange may face challenges separating speculative growth stocks from those with durable earnings and cash flow. That brings us to a fascinating tale of two top Canadian AI stocks with widely diverging fortunes: supply-chain software pioneer Kinaxis (TSX: KXS) stock and electronics manufacturing powerhouse Celestica (TSX: CLS).

While one is quietly building an AI-powered earnings machine while its shares languish, the other is riding a generational AI hardware super-cycle to record heights.

Kinaxis stock: High margin growth collides with software headwinds

Kinaxis has spent the last five years quietly transforming its artificial-intelligence powered supply chain software platform into a more profitable cash flow generator.

As its cloud-based supply-chain software platform continues to gain loyal customers, the enterprise software provider has seen its quarterly revenue run rate increase by 170% over five years. Operating margins expanded from a thin 0.8% in 2021 to 17.8% over the past 12 months. Even more striking, cash flow per share has surged 551%, and earnings per share have ballooned 11,740%, all powered by its AI-powered software business.

Correspondingly, Kinaxis stock’s valuation multiple has compressed from an astronomical historical P/E of 370 in 2022 to a trailing P/E of 40.7 and a forward P/E of 33 today.

Why, then, is Kinaxis stock down 10% over the past five years while other AI stocks surge? The answer lies in its business model.

As a software vendor rather than an AI hardware supplier, Kinaxis sits outside the immediate capital expenditure wave sweeping chipmakers and hardware assemblers. Furthermore, investors fear that generative AI autonomous agents could eventually dilute revenue per corporate seat, potentially forcing software providers to lower subscription rates to retain clients.

Frustrated by slowing top-line growth acceleration, shareholders pushed for new leadership, leading to the departure of its longtime CEO in late 2024 to drive growth forward.

But Kinaxis has grown its earnings and cash flow at faster rates compared to a rallying Celestica over the past five years.

CLS Revenue (Quarterly) data by YCharts

Is KXS driving growth forward?

Kinaxis is driving revenue and earnings growth forward. The company has introduced AI agents, and its extending the scope of its offerings beyond planning and decision making to help customers coordinate and operationalize those decisions, using AI. It has already signed up 10% of its existing customer base on a paid or trial subscription to its Maestro AI agents going into the third quarter of 2026. Second quarter software-as-a-service (SaaS) revenue surged 20% year-over year, EPS increased 15%, and cash flow from operations surged 36% year-over-year.

To augment shareholder returns, Kinaxis has been using its excess cash flow to repurchase its common stock since November 2025.

Celestica stock: Riding the AI hardware super-cycle

Celestica stock has been one of the biggest winners during the global AI hardware super-cycle. It’s manufacturing customized hardware and high-speed connectivity solutions for data-centre builders who are bidding component prices to record levels. Celestica’s top line and earnings have exploded.

Total revenue tripled from $7.8 billion 2021 to $21.5 billion over the past 12 months, while diluted earnings per share surged from $1.15 to $13.29 during the same period. Operating margins expanded, and CLS stock’s Return on Equity (ROE) skyrocketed from 7.1% to 45%.

This structural operational shift has dampened legacy cyclicality in rewarding long-term shareholders with a 3,714% five-year return and turning a $1,000 investment into $38,140.

Which Canadian AI stock is the better buy?

Kinaxis stock has surged by 20% this month, perhaps it is gaining new momentum. But Celestica stock’s lower valuation makes it appealing still.

Despite Celestica stock’s historic rally, its forward P/E ratio of 22.8 remains noticeably lower than Kinaxis’s multiple of 33.3. A forward price-earnings-to-growth (PEG) ratio of 0.5 makes Celestica stock appear undervalued relative to its earnings growth outlook, while Kinaxis’s comparable PEG of 2.3 implies the stock could be overvalued.

Although Kinaxis stock has grown its earnings at a faster multi-year clip while generating consistent cash flow, market sentiment heavily favours hardware enablers today. Celestica is directly plugged into the unprecedented AI data centre spending wave, while Kinaxis is a good watch as it courts enterprises that may be tempted to try internally modified AI agents to enjoy some “AI savings”.

The post Skip the Speculation: These Canadian AI Stocks Already Have the Earnings to Prove it appeared first on The Motley Fool Canada.

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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Celestica and Kinaxis. The Motley Fool has a disclosure policy.

If you think you need to invest a big sum of money in large chipmakers to benefit from the data centre boom, think about everything that has to surround those chips first. A powerful processor isn’t much use sitting by itself. Artificial intelligence (AI) data centres need servers to house computing power, networking equipment, and storage systems to handle huge amounts of data, and plenty of specialized hardware to tie everything together. And somebody has to build all of that.

That’s exactly why I find Celestica (TSX: CLS) quite interesting today. In recent years, this Canadian technology giant has become an important supplier to this AI infrastructure buildout, and the opportunity is already showing up in its business.

In this article, I’ll explain why Celestica could be one of the best Canadian stocks to profit from the continuing data centre boom without simply chasing the biggest AI stocks.

Celestica stock

To put it simply, Celestica designs and makes hardware platform and supply chain solutions. The business of this Toronto-based technology firm includes the Connectivity & Cloud Solutions (CCS) and Advanced Technology Solutions (ATS) segments. With its CCS segment, the company serves customers that are closely connected to growing data centre infrastructure needs.

After rallying more than 60% over the last year, Celestica stock currently trades at $407.67 per share, giving it a market cap of $51.3 billion. That rally makes more sense when you look at how quickly its business has been expanding.

The numbers behind the data centre boom

In the latest quarter ended in June, Celestica’s revenue surged 62% year-over-year (YoY) to US$4.7 billion. Its revenue figures surpassed the high end of its guidance range because of stronger-than-expected customer demand and solid operational execution.

At the same time, its profitability continued to move in the right direction. The company’s adjusted earnings climbed to US$2.54 per share from US$1.39 a year earlier. Also, its adjusted operating margin improved to a company record of 8.2% from 7.4%, mainly reflecting stronger-than-anticipated operating leverage.

More importantly, Celestica’s CCS segment revenue jumped 84% YoY to US$3.8 billion. Its hardware platform solutions revenue also surged 58% to roughly US$1.9 billion. These businesses put Celestica right in the middle of rising infrastructure demand linked to AI, cloud, and hybrid-cloud data centres.

Why the growth runway still looks strong

Interestingly, Celestica is continuing to witness stronger customer demand and better financial visibility. Improved component supply and new program wins are also supporting the company’s growth prospects.

The company now expects its revenue growth rate in 2027 to accelerate beyond the 65% growth anticipated for 2026. It also expects adjusted earnings per share to grow faster than revenue next year with higher anticipated adjusted operating margins.

Considering all these positive factors, Celestica looks like an attractive Canadian stock for investors hoping to benefit from the continued AI data centre boom. While its shares have recently pulled back, its business continues to post strong demand, rapid revenue growth, improving margins, and higher earnings.

The post Here’s How This Canadian Company Could Profit From the Data Centre Boom appeared first on The Motley Fool Canada.

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Fool contributor Jitendra Parashar has positions in Celestica. The Motley Fool recommends Celestica. The Motley Fool has a disclosure policy.

The data centre boom may be powered by artificial intelligence (AI), but AI chips are only part of what keeps these enormous facilities running. Powering every data centre requires a huge network of electrical equipment that plays an important role in managing enormous power loads. As companies pour money into new computing capacity, that supporting infrastructure is becoming increasingly important – and lucrative for the businesses supplying it.

One Canadian manufacturer is already benefiting from this shift, with data centre projects contributing to rapid demand growth, a substantial order backlog, and continued investment in production capacity.

In this article, I’ll look at a top growth stock and explain how the data centre boom could translate into years of growth for this Canadian company.

Hammond Power Solutions stock

If you want exposure to the data centre boom without buying another chip or software stock, Hammond Power Solutions (TSX: HPS.A) offers an interesting alternative.

The Guelph-based company makes dry-type transformers, power quality products, related magnetics, and power conversion systems. Its products are used across electrical distribution networks and serve industries ranging from data centres and commercial construction to mining, oil and gas, and wind power.

After soaring by 105% over the last year, Hammond stock now trades at $239.69 per share, giving the company a market cap of $2.2 billion. However, shares have cooled by about 20% over the last three months, making it look like an attractive stock to buy on the dip. The company also offers a small 0.5% dividend yield.

That recent pullback comes after a massive longer-term rally, but Hammond’s underlying business momentum remains strong. Data centre investment has become a major growth driver for the company in the U.S. market. At the same time, electrification and power infrastructure spending are also adding to demand for its products.

Data centre demand is driving record growth

In the second quarter, this Canadian company posted record sales of about $325 million, up nearly 45% year-over-year (YoY). Its U.S. and Mexico sales surged 73% YoY to roughly $273 million, driven largely by higher data centre shipments, modestly improving industrial markets, and better price realization.

Canada was a weak spot, as its home market sales fell nearly 24% YoY due partly to the timing of large custom projects, along with softer market conditions and increasingly competitive pricing.

Still, profitability showed improvement as Hammond’s gross margin climbed to 31.5% from 30.7% a year ago. Price increases implemented to offset tariff-related input costs helped the sequential improvement. A higher custom product mix and operational improvements also supported margins.

Why the growth runway remains attractive

Clearly, the data centre boom may still have a long way to go, and Hammond has been adding capacity to capitalize on the opportunity.

The company’s second-quarter backlog was nearly 97% higher than a year ago, primarily because of large project orders tied to data centre activity. Although the backlog fell 6.9% sequentially as shipments exceeded new bookings, it remained at significant levels. That should help Hammond utilize its expanded manufacturing capacity while improving lead times.

Another positive about this data centre-linked stock is its new Mexican facility, which is helping improve operating leverage. Recently, Hammond also completed its acquisition of AEG Power Solutions, which could accelerate its growth further in the long run. Given all these positive factors, Hammond gives investors a different way to benefit from rising AI data centre investment. Its record sales, elevated backlog, expanding manufacturing footprint, and strong U.S. demand make it an attractive Canadian stock to consider after its recent pullback.

The post This Canadian Company Could Cash in Big on the Data Centre Boom appeared first on The Motley Fool Canada.

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Fool contributor Jitendra Parashar has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Hammond Power Solutions. The Motley Fool has a disclosure policy.

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.

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.

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.

The post Real Revenue, Real Margins: Inside Celestica’s AI Hardware Boom appeared first on The Motley Fool Canada.

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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Advanced Micro Devices, Celestica, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.

Software stocks picked up momentum in the latest earnings season, which began in late July. Microsoft and Amazon reported strong revenue and earnings growth in cloud and artificial intelligence (AI). Riding the momentum rally, Constellation Software (TSX: CSU) stock surged 28.8% from July 23, 2026, onwards, but pulled back 6.8% after reporting its second-quarter earnings on August 12.

The long-term growth stock that has compounded the wealth of its loyal shareholders saw its valuation halve after the sudden exit of its founder, Mark Leonard, in July 2025. Can you judge a long-term growth stock like Constellation from just a single quarter of earnings? Not exactly.

Why did Constellation Software stock fall 6.8% after earnings?

Constellation saw a 17% year-over-year increase in revenue, a 20% increase in operating expenses, and a 57% increase in free cash flow (FCF) in the second quarter of 2026. Unlike other operating companies, Constellation’s bottom-line growth is higher because of the nature of its business.

Constellation Software operates as a private equity firm for vertical-specific software (VSS) companies that enjoy sticky and recurring cash flow from maintenance services. It acquires these companies, improves their operational efficiency and profitability while allowing them to work independently. In return, it gets higher earnings per share (EPS) and free cash flow available to shareholders, which it uses to buy more VSS companies.

Constellation’s strong double-digit EPS and FCF growth is fuelled by acquisitions instead of organic growth. This is because Constellation acquires mature companies with niche cash flow. It acquires these companies from individual founders, private equity (PE) portfolio managers, and carve-outs from large companies. Constellation offers them an exit opportunity by acquiring their company at a discount.

Despite knowing that FCF and EPS growth are key growth drivers, investors discounted Constellation stock for slower organic growth from large acquisitions.

Is Constellation Software a good stock to buy now?

The current dip is a good opportunity to buy Constellation stock. It can be a good diversification for your portfolio as it gives you exposure to a different asset class. Private equity firms need patient capital to identify companies that have scope to improve profitability or turn around losses, acquire them at good prices, and generate returns.

Constellation has converted private equity into ongoing operations, whereby it is self-funding new acquisitions from the FCF from previous acquisitions. The higher the FCF, the more money it has to make acquisitions. Earlier, it acquired small companies in the range of $5–$10 million. Now it is targeting companies worth $100 million and above. The larger companies are more complex to manage and generate returns.

Most of the companies it acquires are niche companies that do not expand or grow revenue much. Not all software companies are Microsoft or Amazon that need widespread adoption to scale operations. Most software companies are like Springer-Miller Systems, which offers hospitality management systems to hotels, resorts, and spas. The owner sells their stake to Constellation. The acquired company continues to operate as usual with the same employees, with a tweak in the management approach towards profitability.

Constellation’s dip comes as the shift to larger acquisitions is dragging returns. But once the turnaround of portfolio companies picks up momentum, its share price could surge.

The AI opportunity and risk

Another core reason behind the halving of Constellation’s share price in the last 12 months was AI uncertainty. The fear of AI replacing software jobs pulled down all software stocks. Even Constellation kept an eye on the AI opportunity and how to pursue it.

Mark Miller talked about Constellation’s AI approach in detail at the second-quarter earnings call. The company is using AI internally and for clients. Its operating companies are using powerful AI tools to offer AI applications to its clients. However, selling AI products is different than developing them. Customers should know what is possible and be willing to shell out extra for AI.

Constellation’s decentralized AI approach helps its AI strategy to be flexible and diversified. It can easily dispose of strategies that didn’t work and unlock any potential benefit. Constellation has not yet disclosed the AI expense but is working towards reducing management.

The post Down 6.8% After Earnings, Is Constellation Software a Good Stock to Buy Now? appeared first on The Motley Fool Canada.

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The Motley Fool has positions in and recommends Constellation Software. The Motley Fool recommends Amazon and Microsoft. The Motley Fool has a disclosure policy. Fool contributor Puja Tayal has no position in any of the stocks mentioned.

The TSX Index is charging, with a 4.4% rally in the first half of August. Leading this charge are technology stocks, with Shopify and Constellation Software (TSX: CSU) seeing a sharp rally of 20–30%. After tepid growth in May and June, artificial intelligence (AI) momentum is picking up again, as the latest earnings show positive revenue and earnings growth from AI. This time, the stocks to buy are Constellation and Celestica (TSX: CLS).

The two TSX stocks to watch as they ride the next AI rally

Constellation Software

AI and Constellation Software are not exactly the right pair, but hear this. In its latest earnings call, Constellation Software chief executive officer Mark Miller said that the company is experimenting with various AI tools, trying to show clients what is possible. The decision to give that extra buck for AI or not is the client’s call. His exact words were, “You can build products fast, but selling them is a whole other thing.”

This AI experiment can have two outcomes:

• Either the AI experiment fails and mission-critical clients stick to legacy software. That means Constellation’s recurring cash flow from maintenance will continue. This is a high possibility in the government, healthcare, and banking sectors, where clients are concerned about adopting AI and the cloud.
• Or the experiment succeeds, and clients pay for AI solutions. That will boost Constellation’s organic growth. So far, AI is at an experimental stage, and it is too early to say if clients are willing to pay.

Unlike other software companies which have a single AI at its center, Constellation’s AI strategy is decentralized. Its operating companies specializing in their respective verticals are testing AI at their level. This reduces concentration risk and makes AI adoption flexible. In either case, Constellation will stand to win.

I am bullish on Constellation stock because it will benefit from either scenario: an AI bubble burst or AI proliferation.

How to value this TSX stock

Most investors make the mistake of valuing Constellation like a regular software stock – on its revenue growth rate. It should be valued as a late-stage private equity firm, which focuses on holding cash-generating assets for the long term. They buy software companies with good cash flow at a bargain price using cash. Most owners sell their companies at a discount as they are retiring, and finding buyers for a private company is tough. Constellation lets the software company operate independently while extending management support to improve operating efficiency. It aims to increase cash flow, which it can reinvest to buy another company.

Hence, the right way to value Constellation is through the price-to-earnings (P/E) ratio. The stock is trading at an attractive valuation of 19 times its forward  P/E ratio. Considering a 57% earnings per share (EPS) growth rate, it has strong growth potential.

Celestica

Another TSX stock worth watching or holding now is Celestica, as it sees orders from the Enterprise segment materialize. This is the segment that caters to AI compute for hyperscalers and has higher margins. You may see a shift in the income statement with profits growing faster than revenue. It has guided a 190% year-over-year increase in Enterprise revenue in the third quarter of 2026.

Celestica has even revised its 2026 guidance for adjusted EPS from $10.15 to $11.30 and free cash flow from $500 million to $600 million. The stock is trading at 27.7 times its forward P/E ratio, which is a reasonable valuation. However, any earnings beat may send the stock to the next growth cycle. What makes me confident about Celestica’s long-term growth is management’s outlook for 2027, where it expects accelerated revenue growth compared to 2026. Management is even raising $3 billion in equity capital for capacity expansion and working capital needs to meet long-term demand.

How to value this TSX stock

The right way to value Celestica is using the revenue growth rate. It is a third-party manufacturer that has expanded to an original design manufacturer. I won’t be surprised if Celestica uses capex to expand its product line beyond Ethernet switches and storage devices to cater to AI infrastructure demand.

The post The TSX Is Charging: Here Are 2 Stocks I’m Watching appeared first on The Motley Fool Canada.

More reading

• 2 Stocks I’d Buy for a Year-End Breakout
• 700 U.S. Products Just Got More Expensive in Canada: Which TSX Stocks Win?
• This Stock Is Down 35% From its High: The Business Looks Better Than the Price
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The Motley Fool has positions in and recommends Constellation Software and Shopify. The Motley Fool recommends Celestica. The Motley Fool has a disclosure policy. Fool contributor Puja Tayal has no position in any of the stocks mentioned.