Celestica’s $1B CAPEX Boom Signals Strong Buy Opportunity
Celestica has undergone a remarkable transformation, evolving from a conventional electronics manufacturing services (EMS) provider into a vital collaborator for major AI hyperscalers. This shift has enabled the company to secure an impressive operating margin of 7.7%, highlighting its enhanced profitability and strategic positioning in high-demand sectors.
Investment Thesis
Throughout more than a decade, investors largely viewed Celestica Inc. (CLS) as a modest-margin operator within the electronics manufacturing services industry, characterized by constrained growth prospects and limited upside potential. However, by 2026, the landscape had dramatically shifted, positioning the company on much firmer ground with substantial opportunities ahead.
This evolution stems from Celestica’s adept pivot toward fulfilling the intricate requirements of AI infrastructure projects. No longer confined to basic assembly tasks, the firm now engages in sophisticated design, engineering, and production processes that are indispensable for the expansive data centers operated by leading tech giants. Such hyperscalers depend heavily on Celestica’s expertise to scale their AI capabilities efficiently, driving consistent revenue growth and fortifying long-term partnerships.
A pivotal element in this narrative is the company’s aggressive $1 billion capital expenditure (CAPEX) initiative slated for 2026. Far from signaling financial strain, this substantial outlay underscores Celestica’s proactive stance in expanding production capacity to meet surging demand from the AI sector. Investors accustomed to traditional price-to-earnings (P/E) ratios may find current valuations puzzling, as these heavy investments temporarily obscure the underlying earnings strength. Nevertheless, when assessed through an enterprise value-to-sales (EV/Sales) lens at approximately 1.90x, CLS appears significantly undervalued relative to peers in the broader AI infrastructure ecosystem.
This valuation disparity points to compelling total return prospects exceeding 100%, making the stock an attractive prospect for forward-thinking portfolios. The ongoing AI supercycle provides powerful tailwinds, further bolstered by expectations of margin expansion as economies of scale take effect post-CAPEX deployment.
Celestica’s robust order backlog and diversified client base across connectivity, aerospace, and industrial segments add layers of resilience. Management’s disciplined execution, coupled with a commitment to shareholder value through prudent capital allocation, reinforces the bullish outlook. In essence, the $1 billion CAPEX surge is not a cautionary signal but a clear indicator of strategic foresight and growth momentum, warranting a strong ‘Buy’ recommendation for CLS shares.
