Celestica: A Cautionary Observation

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It is becoming increasingly difficult to ignore the pronouncements regarding Artificial Intelligence, and the expenditure upon its infrastructure. Gartner, a firm whose pronouncements are rarely, if ever, accompanied by a blush, anticipates a most substantial increase – a full forty-four percent – in global spending this year, amounting to a sum so large as to quite take one’s breath away. That a considerable portion – some fifty-four percent, no less – is devoted to the very foundations of this new technology suggests a degree of confidence that, to a dispassionate observer, appears rather… enthusiastic.

It is within this climate of expectation that one finds oneself compelled to examine Celestica (CLS +0.07%). The company has, it is true, enjoyed a most remarkable year, its stock having ascended by a considerable margin. One observes, however, that popularity is not invariably synonymous with prudence, and a healthy skepticism is rarely misplaced. The question, therefore, is not merely whether Celestica may prosper, but whether its current valuation adequately reflects the inherent uncertainties of this rapidly evolving landscape.

A Most Convenient Ascent

Celestica, one gathers, is an establishment engaged in the rather intricate business of manufacturing electronics. They provide, it seems, a variety of services to those engaged in cloud computing, communications, and even the more martial pursuits of aerospace and defense. The company’s Connectivity and Cloud Solutions business has, most conveniently, benefited from the prevailing enthusiasm for Artificial Intelligence, serving, as it does, the markets for servers and storage.

Specifically, they construct data center networking switches – a detail which, while perhaps lacking the romance of a well-turned sonnet, is undeniably crucial to the operation of these new technologies. These switches are, it appears, in high demand from those ‘hyperscalers’ – a term which suggests a scale of ambition bordering on the immoderate – who are developing custom AI processors. Celestica is careful to point out its connections to Broadcom, Marvell Technology, AMD, and Intel – a network of alliances which, while impressive, does not necessarily guarantee immunity to the vagaries of the market.

The result of these fortunate circumstances has been a substantial increase in revenue for Celestica’s CCS business – a forty-three percent rise in the last quarter, amounting to $2.4 billion. This segment now accounts for a considerable seventy-six percent of the company’s total revenue, which, while undoubtedly pleasing to those within its walls, does introduce a certain degree of vulnerability. The company anticipates revenue of $12.2 billion this year, a twenty-six percent increase, and earnings of $5.90 per share – a fifty-two percent improvement. Such growth, while admirable, invites scrutiny.

Celestica further anticipates a thirty-one percent increase in revenue and a thirty-nine percent rise in earnings next year. They also claim a growing share of the custom Ethernet switch market, having risen from forty percent to fifty-five percent last year. A most commendable achievement, to be sure, though one wonders if such rapid expansion is entirely sustainable. They have also been approached by a ‘hyperscaler’ to design networking solutions, which, if brought to fruition, may further enhance their prospects. One might observe, however, that reliance upon the patronage of a single, powerful entity is rarely a position of strength.

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A Question of Valuation

Celestica’s stock currently trades at a mere 3.2 times sales, a figure which, after its recent ascent, appears rather… modest. The Nasdaq Composite, by comparison, trades at 5.5 times sales. Should Celestica achieve $16 billion in revenue this year and trade in line with the index, its market capitalization could reach $88 billion – a sum which, while not entirely unreasonable, does require a degree of optimism.

One might be tempted to conclude that the stock is undervalued, and therefore a prudent investment. However, one must always bear in mind that the market is rarely governed by logic, and that enthusiasm, when unchecked, can lead to excesses. It is, therefore, advisable to approach this situation with a degree of caution, and to resist the temptation to ‘buy hand over fist,’ as some might suggest. A measured approach, informed by a healthy skepticism, is far more likely to yield a satisfactory outcome.

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2026-01-21 23:52