Celestica Hits New Peaks, Robust Growth/Slim Margins Meet Pricey Valuations

Celestica Inc. (CLS) is demonstrating robust growth, significantly benefiting from the AI and data center boom, which has led management to raise FY2025 guidance for the fourth time and issue strong FY2026 projections, alongside improved pricing power in its ASIC segment. However, the stock's valuation is now considered overstretched following a substantial rally, with concerns about the sustainability of its ~50% YoY adjusted EPS growth and the inherent risk from customer concentration, as three clients accounted for 59% of FQ3'25 revenues, potentially exposing it to painful corrections if highly cyclical capex trends decelerate.

Analysis

Celestica Inc. (CLS) is demonstrably benefiting from the ongoing AI and data center boom, with growing hyperscaler capital expenditure driving robust top and bottom-line performance. Management has further fueled positive sentiment by raising FY2025 guidance for the fourth time and issuing outsized FY2026 projections, complemented by improved pricing power within its ASIC segment.

However, the stock's valuation is now perceived as overstretched following a substantial triple-digit rally from April 2025 lows. There is considerable uncertainty regarding the sustainability of its impressive ~50% year-over-year adjusted EPS growth rate.

A significant risk factor is CLS's customer concentration, where three clients constituted 59% of revenues in FQ3'25. This dependency makes the company vulnerable to potential painful corrections and challenging year-over-year comparisons if highly cyclical capital expenditure trends decelerate.

Key Decisions for Investors

• Investors should critically assess Celestica's current valuation against the backdrop of its recent rally and the analyst's concerns regarding growth sustainability.
• Monitor hyperscaler capital expenditure trends closely for any signs of deceleration, as this could significantly impact CLS's revenue and profitability due to its high customer concentration.
• Consider the inherent risks associated with high customer concentration and cyclical industry exposure when evaluating long-term positions or entry points.