Celestica Q4 Earnings Validate AI Surge but Heighten Valuation Alarm

What happened

Celestica reported strong Q4 2025 results, with CCS revenues jumping 64% and cash flow surging, driven by hyperscaler demand for AI data-center hardware like 800G switches. This performance aligns with the aggressive 2025-26 growth targets highlighted in the DeepValue report, which notes the company's pivot to high-margin AI networking and compute platforms. However, the stock trades at approximately 52x 2024 EPS, embedding optimistic assumptions about sustained hyperscaler capex and margin durability beyond 2026. Critical risks underscored in both the news and report include extreme customer concentration—where three clients drive nearly 60% of revenue—and ongoing softness in the ATS segment, which lacks the cyclical boost of AI. Despite the impressive quarterly numbers, the equity price offers limited upside versus a crowded, momentum-driven profile with potential for 30-40% downside if AI capex moderates or competition erodes pricing.

Implication

Celestica's Q4 earnings demonstrate robust execution on AI-driven growth, but the stock's premium valuation at over 50x earnings leaves no margin of safety for setbacks. The DeepValue report outlines a base case intrinsic value of $260, implying downside from current levels if 2026 targets are missed or margins compress. Existing holders should consider trimming positions above $360 per the report's guidance to mitigate risk in a volatile, customer-concentrated business. New capital is better deployed waiting for a pullback to $240 or lower, where the risk-reward improves amid clearer evidence of durable post-2026 economics. Vigilance on hyperscaler capex announcements and Celestica's ability to maintain share in 1.6T ramps is essential to avoid permanent capital loss in a bear scenario.

Thesis delta

The strong Q4 earnings confirm near-term operational strength but do not shift the investment thesis. The stock remains overvalued with a high probability of negative returns over 6-18 months due to embedded risks from customer concentration and AI capex dependency. The DeepValue recommendation of a potential sell or trim above $360 stands unchanged, emphasizing patience for a better entry or proof of sustained economics.