Celestica's AI Growth Highlights Customer Stickiness Amid Persistent Risks

What happened

Celestica is riding a wave of strong revenue and profit growth, fueled by AI-driven demand in its Hyperscale Platforms and Solutions (HPS) segment, which now accounts for 43% of revenue. A recent article emphasizes this momentum, pointing to customer stickiness from complex, high-margin projects in Advanced Technology Solutions (ATS) and leadership in AI infrastructure. However, the DeepValue report underscores that the stock's elevated 53x P/E ratio and high customer concentration—with the top two clients making up 39% of revenue—pose significant downside risks. Despite improvements in leverage and capital efficiency, persistent pricing pressure in Connectivity & Cloud Solutions (CCS) and supply chain bottlenecks threaten long-term durability. This juxtaposition of growth and vulnerability supports a neutral investment stance for now.

Implication

Celestica's accelerating revenue and margin expansion from HPS and ATS segments offer near-term upside if AI demand persists, but the stock's premium valuation leaves little room for error. High customer concentration exposes the company to potential revenue shocks if key clients reduce orders, while CCS pricing pressure could erode margins over time. Disciplined capital allocation and solid liquidity provide some downside protection, yet these do not fully offset the risks in a competitive EMS industry. Monitoring HPS order sustainability and diversification efforts is critical, as any signs of slowdown or client loss could trigger a downgrade. Overall, the current setup favors caution, with a buy rating only justified by clearer evidence of risk mitigation and durable growth.

Thesis delta

The article reinforces the growth narrative around customer stickiness but does not shift the core thesis, as the DeepValue report's concerns over valuation and concentration remain unaddressed. Investors should watch for proof of sustained AI order flow and reduced reliance on top customers before considering a more bullish stance.