Celestica's AI Rally Meets Valuation Reality as Focus Shifts to 2027 Sustainability

What happened

Celestica's stock has soared over 200% in the past year, driven by robust AI networking demand that propelled Q4 revenues up 44% YoY and Q1 2026 guidance implying 51% growth. However, a Seeking Alpha article now rates it Hold, citing fair valuation after this rally and limited near-term upside, with the forward PE compressing to ~31x for 2026. The DeepValue master report echoes this caution, rating Celestica a 'POTENTIAL SELL' due to high multiples like ~52x 2024 EPS and a shallow moat exacerbated by heavy customer concentration. Critical risks include dependence on hyperscaler AI capex, which may moderate post-2026, and competitive pressures that could erode margins from record levels. Thus, the narrative is pivoting from celebrating near-term growth to demanding proof that Celestica can sustain its economics into 2027 and beyond.

Implication

Celestica's valuation offers no margin of safety, trading above the base case intrinsic value of $260 and exposing investors to potential 30-40% downside in a bear scenario where margins revert. The concentrated customer base and lack of contractual minimums mean any hyperscaler capex slowdown or share loss could swiftly hit earnings and multiples. Competition from peers like Flex and Arista is rising in AI networking, threatening Celestica's market share and pricing power. Therefore, prudent action involves reducing positions and monitoring for clearer signs of durable post-2026 growth, such as successful 1.6T ramp-ups or stabilized hyperscaler spending. Key checkpoints include Q4 2025 earnings and hyperscaler 2027 capex guidance, which will test the sustainability thesis.

Thesis delta

The investment thesis is shifting from a straightforward momentum bet on AI infrastructure growth through 2026 to a risk-aware stance that questions durability beyond the current cycle. Previously, the focus was on capturing hyperscaler capex surges; now, it emphasizes Celestica's need to prove it can maintain elevated margins and competitive advantage into 2027, amid overvaluation and structural vulnerabilities.