Celestica Inc. (CLS) | The Buildout — AI Infrastructure
The Verdict
Celestica builds the physical data-center systems that hyperscalers need for AI: networking switches, rack-scale systems, AI/ML compute platforms, and storage. Its shift from contract manufacturer to a codesign partner for advanced hyperscalers is the central part of its AI-infrastructure role, with Connectivity and Cloud Solutions now the dominant segment.
| Market Cap | — |
| Revenue (TTM) | $15.6B |
| Revenue Growth | +47.5% |
| EBITDA Margin (TTM) | 9.3% |
| Net Debt | $275M |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Connectivity and Cloud Solutions revenue grew 84% year over year in Q2 2026 to $3.81B and is guided to grow about 85% for FY2026.
- FY2026 revenue guidance was raised twice in roughly three months, from $17B to $19B to $20.5B.
- Management expects 2027 revenue growth to accelerate above the 65% pace expected for 2026, with adjusted EPS growth outpacing revenue growth.
- Newly named programs include the OpenAI/Broadcom Jalapeno accelerator, AMD Helios scale-up switch, and a 1.6T co-packaged optics switch.
- Adjusted operating margin reached 8.2% in Q2 2026, a new company high, and FY2026 guidance was raised to 8.4%.
What We’re Watching
- Q2 adjusted gross margin declined 20 bps year over year to 11.5% on CCS mix; management expects gross margin around the mid-11s through 2026.
- Customer concentration is high and rising; Q2 top three customers were 32%, 17%, and 14% of revenue, and FY2025 top 10 was 79%.
- 2027 remains directional rather than a formal guide; management declined to detail 2027 segment mix.
- Several complex ramps need to land together: 1.6T switches, CPO, Helios, OpenAI racks, next-generation AI/ML compute, and storage.
The thesis is strengthening. Guidance has been raised twice, Q2 came in above the high end, and previously vague programs became named wins. The open question is whether component supply and parallel ramp execution can convert demand into revenue, and how the OpenAI program's consignment-like economics will affect reported growth.
Earnings Beat
Q2 2026 revenue was $4.70 billion, up 62% year over year and above the high end of guidance. Adjusted gross margin was 11.5%, down 20 bps year over year on CCS mix, while adjusted operating margin reached 8.2%, a new company high. CCS revenue grew 84% year over year to $3.81 billion, led by 800G switch ramps and an AI/ML compute program.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $4.7B | $4.0B | $2.9B | +62.4% |
| Gross margin | 12.3% | 10.8% | 12.8% | -50bps |
| EBITDA | $502M | $312M | $318M | +58.1% |
| EPS | $3.17 | $1.83 | $1.82 | +74.3% |
| HPS revenue | $1.9B | $1.7B | n/a | +58% |
the constraint is really around materials… the demand does exceed the revenue figures that we’ve been sharing.— Mandeep Chawla, Chief Financial Officer, July 28, 2026
Management tone: Management tone was more direct and more confident in Q2 than in Q1: it moved from qualitative backlog-strength language to explicit 2027 acceleration and named previously vague programs. It was direct on supply constraints and the CPO win, but withheld 2027 segment-mix detail.
Management Guidance
Q3 2026 guidance is revenue of $5.25–$5.55 billion, adjusted EPS of $2.88–$3.08, and an implied adjusted operating margin of 8.4%. FY2026 guidance was raised to revenue of $20.5 billion, adjusted EPS of $11.30, adjusted operating margin of 8.4%, and free cash flow of $600 million including roughly $1 billion of capex; CCS is guided to grow approximately 85% and ATS approximately 10%.
Trajectory
Top-line growth is steepening through 2026: total revenue rose 53% year over year in Q1 and 62% in Q2, and Q3 guidance implies about 69% growth at the midpoint. The main driver is CCS, up 76% in Q1 and 84% in Q2, while ATS has moved from roughly flat to mid-teens growth. Operating margin is doing the heavy lifting—adjusted operating margin expanded from 8.0% to 8.2% and is guided to 8.4%—while adjusted gross margin has stayed around 11.3% to 11.5%.
The Model
The model's locked FY+1 projection is revenue of $19,200M and EBITDA of $1,728M, a 9.0% EBITDA margin. FY+2 revenue is projected at $27,000M with EBITDA of $2,646M, a 9.8% margin. The near-term is anchored by current 1.6T and AI/ML compute ramps, while FY+2 is driven by the named ramp set: OpenAI rack-scale production, AMD Helios, next-generation AI/ML compute, and co-packaged optics mass production.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $12.4B | $19.2B | $27.0B |
| YoY Growth | — | +54.7% | +40.6% |
| EBITDA | $1.1B | $1.7B | $2.6B |
| EBITDA Margin | 9.0% | 9.0% | 9.8% |
Projections are the median of 5 independent model runs. The model’s revenue sits 1.0% above analyst consensus.
Q3 2026 guidance is revenue of $5.25–$5.55 billion, adjusted EPS of $2.88–$3.08, and an implied adjusted operating margin of 8.4%. FY2026 guidance was raised to revenue of $20.5 billion, adjusted EPS of $11.30, adjusted operating margin of 8.4%, and free cash flow of $600 million including roughly $1 billion of capex; CCS is guided to grow approximately 85% and ATS approximately 10%.
What Could Go Right — and Wrong
- Component supply improves enough for revenue to convert the demand management says already exceeds guidance.
- The 10 active 1.6T programs ramp cleanly behind the Q3 2026 mass-production start.
- OpenAI custom racks begin deliveries in 2H 2026 and reach mass production in 2027.
- AMD Helios scale-up switch samples land at end 2026 and the ramp begins in earnest in 1H 2027.
- The co-packaged optics switch moves from 1H 2027 samples to 2H 2027 mass production.
- Component shortages worsen, causing revenue to slip even with strong end demand.
- A top-three hyperscaler pauses or shifts share; the top three were 63% of Q2 2026 revenue.
- Multiple parallel ramps—1.6T, CPO, Helios, OpenAI, next-generation compute—slippage delays revenue.
- Gross-margin mix pressure persists; Q2 adjusted gross margin fell 20 bps year over year.
- The 2027 acceleration remains directional and fails to convert into a formal guide.
Looking Ahead
The next twelve months are a conversion test. The near-term milestones are Q3 2026 results with first 1.6T mass production, initial OpenAI rack deliveries later this year, and AMD Helios samples at the end of 2026. The 2027 picture depends on Helios and co-packaged optics ramps, next-generation AI/ML compute, and the formal 2027 and capex updates.
- Q3 2026Q3 results and 1.6T start — First 1.6T mass-production ramps with two hyperscaler customers are expected.
- 2H 2026OpenAI custom rack deliveries — Initial OpenAI custom rack deliveries are expected later this year.
- October 20262027 capex update — Formal FY2027 capex number; current placeholder is roughly $1.5B.
- End 2026AMD Helios switch samples — Scale-up switch samples are expected toward the end of 2026.
- Late Q1 2027OpenAI rack production start — OpenAI rack-scale production is expected to start late in Q1 2027.
- 1H 2027CPO switch samples — Samples for the co-packaged optics switch are expected in the first half.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $9.6B | $12.4B | $15.6B | +28.7% |
| Gross Margin | 10.6% | 11.6% | 11.6% | +93bps |
| EBITDA | $726M | $1.1B | $5.0B | +53.7% |
| EBITDA Margin | 7.5% | 9.0% | 9.3% | +146bps |
| Net Income | $414M | $834M | $1.1B | +101.6% |
| Free Cash Flow | $256M | $460M | $2.3B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)11.6%
- EBITDA Margin (TTM)9.3%
- Net Margin (TTM)7.2%
- ROIC36.4%
- FCF Conversion36.0%
- SBC / Revenue0.4%
The Company
Celestica is a global electronics manufacturing, design, engineering, supply chain, and platform-solutions company. Its Connectivity and Cloud Solutions segment builds networking switches, optical systems, data-center racks, servers, and storage for hyperscale AI and cloud workloads; its Advanced Technology Solutions segment covers aerospace and defense, industrial, healthtech, and capital equipment. The 10-K describes the company as enabling critical data center infrastructure for AI, cloud, and hybrid cloud.
The company operates a global footprint across North America, Asia, and Europe, with active capacity expansion in Thailand, Japan, and Texas. It is shifting toward design-led work through Hardware Platform Solutions, which manages hardware and systems-level design, software, supply chain aspects, manufacturing, and services; management describes the company as a codesign partner for advanced hyperscalers rather than only a contract manufacturer.
Business Segments
Competitive Landscape
Celestica's competitive set includes EMS/ODM peers Benchmark, Flex, Hon Hai/Foxconn, Jabil, Plexus, Sanmina, Quanta, Wiwynn, and Accton, as well as data-center switching OEMs Arista and Cisco. Management says the company is gaining share because it can reliably produce complex products at scale, and it describes doing both design and manufacturing as part of its 'secret sauce.'
- SanminaNamed EMS competitor; the intel file notes Q2 revenue of $4.01B, up 102%, with ZT Systems contributing $1.88B of AMD-based compute.
- BenchmarkNamed EMS competitor; the intel file notes AI-related wins have begun to ramp and liquid-cooling capability is gaining traction.
- JabilNamed EMS competitor in the 10-K; not discussed.
- Quanta ComputerNamed ODM competitor in the 10-K; not discussed.
- Named data-center switching OEM competitor in the 10-K; not discussed.
Supply Chain
Celestica sits between component suppliers and hyperscaler data-center builders, designing and manufacturing the switches, racks, and compute platforms that AI infrastructure depends on. Components are the binding constraint, not demand.
More on CLS: Earnings recap