Reasons Why Celestica Stock is a Buy - Beyond the 77% 1-Year Surge

Leveraging solid demand trends driven by healthy AI traction, Celestica Inc. CLS has surged 77.4% over the past year compared with the industry's growth of 10.9%. It has outperformed peers like Flex Ltd. FLEX and Jabil Inc. JBL over this period.

Celestica is among the lesser-known winners of the artificial intelligence revolution. This Toronto, Canada-based company offers a one-stop shop for the electronics market, from design to manufacture to supply chain management, operating primarily as a behind-the-scenes partner for other electronics-based firms. With a diverse portfolio of products that form an integral part of AI applications, Celestica's healthy growth momentum is likely to continue.

One-Year Price Performance

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Generative AI Boom Fueling CLS Growth Momentum

Riding on the generative AI boom, Celestia is witnessing robust demand for AI/ML compute and networking products from hyperscale customers. In addition to the high-performance 800G family of network switches (which are vital for data centers that power AI applications) and storage solutions like the SC6100 controller and SD6200 platform (which provide efficient and scalable data storage for AI), Celestia offers Photonic Fabric – an optical compute and memory fabric solution capable of supercharging AI infrastructure. This solution provides a foundational technology to advance AI while maintaining scalable, sustainable and profitable business models.

By integrating next-generation networking products with silicon photonics packaging solutions, Celestica aims to optimize supply chain solutions to reduce time to market. The data center switches combined with optical transceivers have the potential to handle and sustain high volumes of both inbound and outbound network traffic and cater to the demand for data center bandwidth for supporting AI/ML and data analytics applications. These state-of-the-art products have translated into solid top-line growth in recent years.

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CLS Expanding Portfolio to Better Serve Customers

Celestica is increasingly focusing on improving its portfolio depth. It recently introduced SC6100 – a next-generation, 2U rackmount all-flash storage controller – designed to deliver superior performance for the most demanding enterprise application workloads. Powered by two EPYC Embedded 9004 series processors from Advanced Micro Devices, Inc., it offers improved energy efficiency for next-generation networking, security and storage applications.

Harnessing AMD's "Zen 4" core architecture, the SC6100 supports up to 24 dual-port U.2 PCIe Gen 5 solid-state drives with flexible input/output options and hot-swappable components for maximum uptime and reliability. This provides a secure, cost-effective and versatile storage solution for enterprises that generate, store and analyze increasing amounts of data and rely on real-time analytics to make strategic decisions.

Additional Production Capabilities to Aid CLS

To strengthen its market-leading position of AI-enabled products, Celestia is currently developing more than 100,000 square feet of additional capacity in Thailand. Moreover, it is adding 80,000 square feet of incremental capacity in Malaysia to augment its production capabilities. Celestia is also working with industry leaders to commercialize technologies such as On-Board Optics and Co-Packaged Optics to address the demand for speed and cost-efficiency amid the evolving technology landscape.

Estimate Revision Trend for CLS

Earnings estimates for Celestia for 2024 have moved up 47.2% to $3.65 over the past year, while the same for 2025 has improved 19.5% year to date to $3.99. The positive estimate revision depicts optimism about the stock's growth potential. 

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End Note

As the company scales up production volumes and costs go down, possible uses for silicon photonics are likely to soar across several industries, including automotive, data center and high-performance computing, telecommunications, medical, aerospace and defense. We believe that Celestia is on track for sustained growth over the years, backed by its robust infrastructure investments, solid technology know-how and wide industry experience spanning three decades.

The stock delivered a trailing four-quarter average earnings surprise of 12.2%. It has a VGM Score of A. Celestia currently sports a Zacks Rank #1 (Strong Buy).

Riding on a robust earnings surprise history and favorable Zacks Rank, it appears primed for further stock price appreciation. Consequently, investors are likely to profit if they bet on this high-flying stock now.

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