As we have discussed for our Discovery and Pro members, AI networking is one of the strongest trends for this year and next, driven by scale-up and scale-out networking to support larger GPU racks and accelerating GPU cluster sizes. Celestica is an under-the-radar beneficiary of this trend, capitalizing on strong demand for 800G and 1.6T Ethernet networking switches and leveraging its deep ties to hyperscalers.
Celestica guided for one of the most impressive accelerations seen in this last quarter of earnings, underpinned by its 800G switches accelerating next year with 1.6T on deck. For 2026, Celestica expects revenue growth to accelerate around five points to 31% YoY in 2026, whereas consensus had been pegged at just 17% YoY. This strong upside is being driven by networking and custom AI compute platforms with visibility into 2026-2027.
In terms of AI revenue, Celestica’s Cloud and Connectivity Solutions (CCS) segment is guided to generate $9 billion in revenue in 2025, up ~40% YoY, accounting for nearly 74% of total revenue. CCS, which includes AI networking, server, storage and rack-scale system solutions, is Celestica’s main growth driver, expected to grow ~40% annually in 2026 and 2027.
Celestica is closely linked to Broadcom’s networking platforms as a key vendor, serving major customers such as Google and Meta, with some of its notable product engagements including Google’s TPU server racks, and Meta’s Minerva ASICs servers, Wedge400 switches and also its next-gen Tomahawk5-based 400G AI fabric switch Minipack3. Additionally, management’s commentary suggests that OpenAI could become a key customer as soon as 2027.
Below, we cover Celestica’s strategic positioning in the high-bandwidth Ethernet market, its engagements with hyperscalers and upcoming platform ramps, its updated growth outlook for FY26 and beyond, and more.
Celestica’s Strategic Positioning in Custom Networking Switches
Celestica is strategically positioned in the AI supply chain as it provides hyperscalers with highly customized data center networking switches, servers and storage platforms, alongside custom rack-scale integration services.
Celestica is also closely aligned with Broadcom, as a preferred provider offering customized high-performance Ethernet switches based on its Tomahawk platform and integrated XPU-based racks and systems. CEO Rob Mionis explained that when Broadcom launches new silicon, such as its newest Tomahawk6, “they’ll work with us to develop products, and those products end up in the major hyperscalers.”
Growth opportunities are primarily centered around its high-bandwidth Ethernet switch portfolio focused on back-end networking, with the company being the leading supplier with 41% share of the >200G switch market through Q2, and with 55% share of the custom switch market (up from 40% in 2024). The back-end networking positioning is important for Celestica as it means the company is exposed to the faster-growing segment of Ethernet switching – the back-end TAM is forecast to grow at a 56% CAGR through 2029 on scale-out, and potentially soon, scale-up demand, whereas front-end (user-facing) is forecast to grow at a 20% CAGR.
Per management, the back-end also sees a much faster refresh rate of every 18-24 months versus >5 years for front-end deployments, and it adopts the newest and fastest bandwidths (800G and soon 1.6T) due to the greater performance and reliability requirements of GPU-to-GPU and rack-to-rack communications.
Celestica’s primary products include scalable top-of-rack switches and high-bandwidth Ethernet switches (>400G). Its 100G and 400G switches are optimized for data center leaf-and-spine deployments.
For 800G switches, Celestica’s DS4100/DS4101 are based on Broadcom’s Tomahawk4 portfolio and the DS5000 is based on the Tomahawk5, targeting high bandwidth data center leaf-spine, and top-of-rack applications. For additional clarity on 800G switch dynamics, management explained that they have seen “tremendous growth in 800G this year to the point where we'll end 2025 with roughly a 50% split between 800G and 400G in terms of the products that we're delivering. As we look into 2026, we're seeing the 800G demand, in particular, accelerating.”
For 1.6T, Celestica will offer the DS6000 and DS6001, based on Broadcom’s upcoming Tomahawk6 offering 102.4Tbps bandwidth, with availability later in 2026. The DS6000 comes in an air-cooled version with linear pluggable optics (LPO) to improve power efficiency, while the DS6001 features hybrid-cooling and the first to integrate direct-to-chip liquid cooling. Both 1.6T switches are optimized for AI back-end networking (scale-out and scale-up), as well as large-scale AI fabrics for AI training and inference for frontier model sizes. Management expects the 1.6T upgrade cycle to emerge in late 2026 but primarily land in 2027, with one customer giving visibility to a back-half 2026 ramp and multiple other ramps occurring through 2027.
Celestica is also already making early investments for 400G SerDes to support 3.2T switch platforms, though it does not expect 3.2T mass production to arrive until 2028. Management is also preparing for co-packaged optics (CPO) and other interconnect types such as co-packaged copper (CPC), and while it sees some potential CPO shipments with 1.6T, it does not expect CPO to emerge in full-force until the 3.2T cycle.
Although these switch products can be highly customized, they support open-source networking stacks such as SONiC, offering hyperscalers flexibility in deployments, facilitating integration into existing software and hardware ecosystems, and letting customers avoid vendor lock-in. This is furthered with Celestica’s extensive Circular Services offering, spanning hardware lifecycle management, remanufacturing, and refurbishment to extend hardware lifetimes and reduce TCO.
ODM Pivot Driving Hyperscaler Growth, with Google and Meta Key Customers (and Soon Likely OpenAI)
This positioning in custom Ethernet switches also pushes Celestica towards more of an ODM (original design manufacturer) model from a traditional EMS contract manufacturer, as it engages more deeply across the design and engineering phase, tailoring products exactly to its hyperscaler customers’ needs. Some of its notable confirmed/implied hyperscaler product engagements include Google’s TPU server racks, and Meta’s Minerva ASICs servers, Wedge400 switches and also its next-gen Tomahawk5-based 400G AI fabric switch Minipack3.
Here is an example of what Celestica’s involvement would look like, such as on Meta’s Wedge400, its top-of-rack networking switch based on Broadcom’s Tomahawk3 from 2021:
- Celestica works with Meta on system requirements and finalizes system level architecture.
- Celestica is fully responsible for hardware design and complete prototyping, along with functional and reliability tests and diagnostic software development.
- After this, Meta reviews Celestica’s engineering design and test reports and moves to production.
Management’s discussion on its first-of-kind rack-scale liquid cooled 1.6T networking win with a hyperscaler (likely to be Meta for its upcoming Santa Barbara racks) also shed light on why Celestica continues to win these engagements:
“The customer required an accelerated road map to allow the solution to be early to market, leveraging Broadcom's Tomahawk 6 SC silicon, making speed to market a key consideration. In addition, the customer required multi-node manufacturing capabilities in Asia and the U.S. to support the delivery of the program. As with many of our key engagements, managing complexity was a defining factor.
Celestica was awarded the program earlier this year based on a strong working relationship with the customer and their confidence in our industry-leading design engineering. They also valued our advanced manufacturing capabilities, specifically our ability to operationalize highly complex production lines for liquid cooled racks at scale and to do this faster and more seamlessly than other potential partners.
After receiving initial Tomahawk 6 samples earlier this year, we quickly stood up an operational prototype for the 1.6T switch and believe we were the first team anywhere to have done so. The program is scheduled to begin mass production next year.”
This ODM pivot and ability to co-design and manufacture highly customized, next-gen networking switch and rack solutions at speed is quite visible in Celestica’s hyperscaler growth trajectory, as hyperscalers are expected to account for ~$6.93 billion of revenue in 2025, up from $2.19 billion in 2022, an incredible ~47% CAGR. However, the ODM positioning also presents a risk as even a shift to higher complexity, higher value products may be unable to produce continuous margin expansion into the low-teens.
Also aiding this hyperscaler growth is a high level of stickiness and deep customer engagement across data rate upgrades. Management explained that they have been able to consistently upgrade all customer engagements each cycle:
“When you look at where we carved out this industry-leading position in networking, it started in 400-gig, and we were able to translate all of those engagements into 800-gig. And those engagements have been expanding incrementally to new opportunities, and we fully plan to translate all of our 800-gig engagements into 1.6T as well, and we're on track to do that.” Management quietly dropped that they currently have ten programs underway with 1.6T.
Digital Native Customer Win and 2027 Ramp (Hint: It’s Likely OpenAI)
Back in January, Celestica announced a “a significant new HPS win with a leading digital native company, who is a pioneer in the commercialization of AI applications,” collaborating with this company to “deliver a full rack, which is an optimized AI system solution built around the customer's custom ASIC accelerator.” The rack-scale solution also will include Celestica’s 1.6T switches and rack-level cooling and connectivity. At the time, Celestica said that “production for this program is expected to begin ramping in the latter part of 2026.”
In Q3, Celestica provided an update, saying that the “design work for this program is well underway, and we expect to receive initial XPU deliveries in the second half of 2026 to support early test deployments with full-scale production expected to commence in 2027.” Management did add that 2026’s $16 billion revenue outlook does not include any contribution from this customer, but if the custom silicon “is available sooner for mass production, then we may be able to produce sooner.”
Broadcom’s discussion around its 10GW commitment from OpenAI likely confirms that OpenAI is Celestica’s new digital native customer, with Broadcom saying that 2026 contribution from OpenAI is expected to be minimal with the 10GW deployments concentrated in 2027 through 2029.
This would potentially be a landmark deal for Celestica in the long-run, as it is an entirely new customer with the potential to add several billion in annual revenue; management said in the original announcement that “demand from this customer at scale could achieve a level similar to those of our largest hyperscaler customers today.” For context, this would compare to Celestica’s largest hyperscaler contributing 28% of revenue in 2024, or ~$2.7 billion, implying OpenAI’s revenue could match that once it ramps.
Financials
Celestica’s financials are somewhat mixed – on one hand, the company expects strong switch demand to drive its Cloud and Connectivity Solutions (CCS) segment revenue up ~40% YoY in both 2026 and 2027, yet gross and operating margins are quite low compared to its key supplier Broadcom.
CCS Revenue to Grow ~40% Annually Through 2027
Celestica was also one of the few companies to really provide a solid long-term growth outlook in its AI-related segment this past quarter, with management confident in maintaining ~40% annual growth in CCS through 2027. While this is already reflected by consensus estimates (meaning Celestica will need substantial upside as growth expectations are already being baked in to shares), there are five main factors that could push growth above and beyond this guide – more on this below.
For 2026, Celestica guided for approximately 40% YoY growth in CCS to ~$12.6 billion, up from $9 billion guided for 2025, supported by views for accelerating 800G demand, early 1.6T ramps and the ramp of its next-gen AI compute platform to full-volume.
Driven by this growth in CCS, Celestica guided for initial revenue of $16 billion in 2026 during Q3’s report, nearly 18% ahead of the consensus estimate for $13.6 billion. This would correspond to ~31.1% YoY growth, a five point acceleration from FY25.Supporting this, management says they “currently have about 12 to 15 months of real solid forecast inputs and demand inputs from our customers,” and in many cases, visibility extends beyond that and longer into 2027. For example, some customers have a “certain amount of ASICs, for example, that they may have committed to, and it gives us some assurance as to the longevity and the size of the overall program.”
Also backing up the guidance is capacity, with Celestica explaining in Q2 that it can support “$3 billion to $4 billion of additional revenue” across its footprint in Thailand, Malaysia, Mexico and the US; Celestica is also aiming to expand production of 800G switches and add capacity for thousands of advanced AI racks annually by 2027.
For 2027, management explained that it is around 12 months too early to provide concrete numbers, but “right now, we think at least 40% [CCS growth] into 2027 is what we have visibility to,” at least 40% [CCS growth] into 2027 is what we have visibility to,” with opportunities to potentially accelerate that growth. Underscoring this strong outlook includes solid visibility into significant new program ramps starting in 2027 (multiple 1.6T ramps with hyperscalers), scale-up engagements translating to production and revenue, a next-gen custom ASIC platform, and mass-production of the rack-scale custom AI system with the new digital-native customer (likely OpenAI).
Thus, assuming ~40% growth in CCS and comments for high-single digit (6-8%) YoY growth in its Advanced Technology Solutions segment (ATS/focused on aerospace, industrial and semicap equipment), a reasonable initial estimate for Celestica’s 2027 revenue would be ~$21.3 billion. This would mark a slight two point acceleration to 33% YoY.
Five Factors Supporting Growth Accelerating Beyond 31-33%
There are five main factors that support Celestica’s revenue growth being materially faster than the initial 31% and 33% implied growth for 2026 and 2027, as each of these five factors all exhibit growth rates in excess of Celestica’s guidance.
While there is no guarantee that Celestica can match or exceed some of the growth rates in the opportunities below, these five factors provide ample evidence of market conditions that can support higher growth.
1) Ethernet Switch Demand Growing for Back-End Networking
As we had discussed in our Top 10 New Ideas report, networking is at the heart of the new architecture that Nvidia is shipping now as the increased bandwidth is instrumental in driving higher performance. The majority of growth is expected to be driven by back-end networking — scale-up and scale-out networks.
Scale-out is where the near-term growth opportunities for Ethernet switches lie, despite Ethernet adoption and revenue share historically lagging InfiniBand by a wide margin. High-bandwidth Ethernet switches are seeing strong demand in recent quarters as hyperscalers pivot away from Nvidia’s lock-in ecosystem of GPU + InfiniBand. Arista has said that momentum for Ethernet “has really shifted in the last year” while Nvidia touted that its new Spectrum-X Ethernet is annualizing at $10 billion in revenue. This is also validated by some of the largest operational GPU clusters of today, such as xAI’s Colossus, utilizing Ethernet for the back-end fabric (Nvidia’s Spectrum-X).
These proof points support bullish growth forecasts for the Ethernet switching market over the next few years. Through 2025 to 2029, the high-bandwidth Ethernet switch TAM is projected to rise at a 30% CAGR, driven by >800G rates rising at a 54% CAGR. In dollar terms, the market is expanding from ~$18 billion to nearly $50 billion over the period.
It is still quite early for the scale-up opportunity, as Broadcom and others just introduced the ESUN consortium (Ethernet for Scale-Up Networking) a few months ago. Scale-up is inherently linked to Broadcom’s 102.4T Tomahawk6 platform, which, as we had discussed in our recent newsletter, Broadcom Stock: The Silent Winner in the AI Monetization Supercycle, paves the way for >100K to 1 million accelerator clusters by allowing larger leaf-spine fabrics to be constructed, while drawing less power and keeping latency low.
Broadcom’s management points toward the flattening of the AI cluster as an important catalyst for this product, stating: “[…] Tomahawk 6 enables clusters of more than 100,000 AI accelerators to be deployed in just two tiers instead of three … this flattening of the AI cluster is huge because it enables much better performance in training next-generation frontier models through a lower latency, higher bandwidth and lower power.”
Broadcom already sees multiple >100K accelerator deployments using Tomahawk 6 for both scale-out and scale-up interconnect, with bookings at record rates. As such, Celestica sees scale-up as an “emerging multibillion-dollar new market opportunity,” having already secured some program wins for its first scale-up solutions leveraging Tomahawk6.
Main takeaway: A majority of Celestica’s switch deployments already go to back-end networking, with >800G growth expected to rise at a 54% CAGR through 2030, 14 points faster than CCS revenue. Main takeaway: A majority of Celestica’s switch deployments already go to back-end networking, with >800G growth expected to rise at a 54% CAGR through 2030, 14 points faster than CCS revenue.
2) Broadcom’s $73 Billion Backlog and AI Revenue CAGR
Broadcom provided an update on its backlog in early December with its fiscal Q4 results, saying that its total AI semiconductor backlog was >$73 billion, with AI switch backlog exceeding $10 billion. Tomahawk6 was booking at record rates, with management later clarifying that TH6 is one of the “fastest-growing products in terms of deployment that we've ever seen of any switch products.”
Broadcom expects the $73 billion backlog to be delivered over the next six quarters, and this is also expected to be a baseline, with CEO Hock Tan explaining that “we fully expect more bookings to come in over that period of time.”
Broadcom also provided a strong AI revenue guide for FQ1 of $8.2 billion, implying a 100% YoY and 26% QoQ growth, primarily driven by custom AI accelerators and Ethernet switches. For 2026 and 2027 AI revenue, BofA analysts are already laying the tracks for $50 billion and $100 billion, implying growth at a 122% CAGR if this pans out. This is notably 2X faster than Broadcom’s previously-laid-out 60% serviceable addressable market CAGR of 60%.
Analysts from RBC also believe that Broadcom’s AI semiconductor revenue acceleration “bodes well” for Celestica’s Q4 as the numbers were “’directionally positive’ for Celestica’s near-term business momentum” in CCS.
Main takeaway: Celestica’s close ties to Broadcom suggest that its accelerating XPU and networking driven momentum and backlog growth could drive a stronger acceleration for CLS.Main takeaway: Celestica’s close ties to Broadcom suggest that its accelerating XPU and networking driven momentum and backlog growth could drive a stronger acceleration for CLS.
3) ASICs CAGR Forecasts
The ASICs market is forecast to see substantial growth over the next few years, as a handful of major hyperscalers pursue ASICs-based AI platform roadmaps. Marvell has projected the ASICs market to rise at a 47% CAGR from 2023 through 2028, rising from $6 billion to $40.8 billion, or nearly 7X growth in five years.
On the other hand, 650 Group has a slightly more bullish forecast, projecting the ASICs TAM to rise at a 54% CAGR from $18 billion in 2025 to $104 billion in 2029, or a roughly 6X increase over the next four years. Broadcom’s rising backlog and increasingly large ASICs orders — $10 billion and $11 billion with Anthropic and the 10GW commitment from OpenAI – support strong growth as Google and Meta continue to build expand their ASICs platforms.
Main takeaway: Rising demand for ASICs over the next few years can drive stronger growth for Celestica as its solutions are almost exclusively focused on ASICs platforms. Main takeaway: Rising demand for ASICs over the next few years can drive stronger growth for Celestica as its solutions are almost exclusively focused on ASICs platforms.
4) Google’s TPU Shipments Accelerating
While the market continues to debate the TPU vs GPU story, there are some reports from analysts that see TPU volumes accelerating over the next few years. For example, Morgan Stanley projects Google’s TPU shipments to be 1.75 million in 2025, with initial contribution of ~0.5 million from TPU v7 Ironwood.
For 2026, the firm projected Ironwood shipments to rise 5X to 2.5 million, driving total TPU shipments up ~83% YoY to 3.2 million. For 2027, Morgan Stanley boosted its shipment forecast by ~67%, from 3 million to 5 million, driven mostly by TPU v8 and future generations, while its 2028 forecast was boosted 120% from ~3.2 million to 7 million. This would imply 2027 and 2028 growth of ~56% and ~40%, up from (6%) and 19% previously.
There are some unsubstantiated claims that Celestica could generate $500 million in revenue per 1 million TPUs shipped, and while this is unverified, if Celestica can capture that amount ($500) per chip, the TPU linked opportunity could be increasingly large over the next few years.
Main takeaway: Celestica could see solid revenue tailwinds linked to Google’s TPUs if shipments accelerate per some analyst estimates, assuming it remains engaged on the platform.Main takeaway: Celestica could see solid revenue tailwinds linked to Google’s TPUs if shipments accelerate per some analyst estimates, assuming it remains engaged on the platform.
5) Meta’s Capex
Meta’s capex strategy is to “aggressively front-load building capacity” to prepare for the most optimistic cases on when AI superintelligence will arrive, with the company outlining substantial capex growth in 2026. Meta aims to meet these capacity needs by “both building our own infrastructure and contracting with third party cloud providers.”
As a result, Meta expects capex dollar growth to be “notably larger in 2026 than 2025,” implying 2026 capex of at least $103 billion, as current guidance for 2025 at $70-72 billion implies a minimum of ~$32 billion YoY growth. However, considering management’s comments for notably larger dollar growth, there is potential for capex to come in at or above $110 billion, up ~55% YoY, above current estimates for $107.9 billion.
Main takeaway: Meta’s capex is expected to grow a minimum of >45% in 2026 as the company spends heavily on AI data center infrastructure, potentially driving faster growth for Celestica as it has worked closely with Meta on prior products (and potentially the upcoming next-gen AI rack ramp in Q4). Main takeaway: Meta’s capex is expected to grow a minimum of >45% in 2026 as the company spends heavily on AI data center infrastructure, potentially driving faster growth for Celestica as it has worked closely with Meta on prior products (and potentially the upcoming next-gen AI rack ramp in Q4).
Key Risk – Communications Growth Decelerating Sharply QoQ
Celestica’s CCS segment is broken down further into two other subsegments – Communications (networking) and Enterprise (servers and storage). This breakdown highlights a key risk moving to Q4, as guidance implies Communications revenue will decelerate sharply QoQ, an odd print considering the strong ramp in switching products.
In Q3, revenue from CCS segment rose 43% YoY to $2.41 billion, driven by an 82% YoY increase in Communications revenue to $1.94 billion offsetting a (24%) decline in Enterprise to $477 million on an AI program transition with a hyperscaler.
For Q4, CCS revenue is implied to accelerate nine points to 52% YoY, with Communications growth guided in the high-60s YoY and Enterprise guided in the low-20s as the new AI program is set to ramp. Despite the seemingly strong guide in Communications, QoQ growth would be just 1% QoQ, a sharp deceleration from Q3’s 18% QoQ growth.
This would mark Communications’ lowest sequential growth in the last two years, and its first time reporting single-digit sequential growth in the last seven quarters, raising a potential red flag considering Communications is primarily driven by networking/800G switches.
A likely explanation of this could be the strong outperformance in Communications in Q3 – guidance was for low-60s YoY growth, which Celestica beat by ~20 points. As a result, QoQ growth was likely expected to be ~4%, but came in at 18%, possibly representing a much stronger-than-expected ramp of 800G platforms in the quarter.
Margins
Margins continued to expand in Q3, with some signs of operating leverage arising from strong Communications growth as operating margin expanded by 4.7 points YoY versus a 2.6 point YoY expansion for gross margin.
- GAAP gross margin was 13.0% in Q3, up 0.2 points QoQ and 2.6 points YoY.
- GAAP operating margin of 10.2%, up 0.8 points QoQ and 4.7 points YoY. Adjusted operating margin was 7.6%, up 0.2 points QoQ and 0.8 points YoY.
- GAAP net margin of 8.4%, up 1.1 points QoQ and 4.8 points YoY. However, adjusted net margin was just 5.7%, up just 0.1 points QoQ and 0.7 points YoY due to a $113 million impact from gains on total return swaps.
For a segment breakdown:
- CCS adjusted gross margin was 12.1% in Q3, up from 11.9% a year ago. CCS adjusted operating margin was 8.3%, up from 7.6% a year ago. Positioning as an ODM may not find much more margin upside even as higher-margin products such as advanced AI rack systems ramp.
- ATS adjusted gross margin was 10.6%, up from 8.4% a year ago. ATS adjusted operating margin was 5.5%, up from 4.9% a year ago.
For fiscal 2025, Celestica guided for adjusted operating margin to be 7.4%, and for 2026, only a slight 0.4 point increase to 7.8% despite the 31% growth on the top-line. This suggests that its positioning primarily as an ODM may limit future upside to operating margins even as hyperscaler-linked revenue and higher-margin, higher-complexity designs increase in its mix:
“So we continue to see the benefits of both operating leverage as well as positive mix in our numbers, on track for about 7.4% operating margin at the company level for 2025, and we're guiding that, that can expand now going into 2026. We do continue to believe that there's opportunities for even more margin expansion. But again, I'm not giving formal numbers for '27 at this point.
When you look at our ATS business, the business has done very well on doing some selective pruning in order to really focus on the highest value engagement. And so we're really happy with the margin expansion that we've seen in ATS already. And we think that there's opportunities to continue to expand and get it above 6%, hopefully in the near to medium term.
On the CCS side, which is operating in the low 8s right now, what's working to our favor is the fact that we will continue to be seeing growth in networking, which are primarily our HPS products. And our HPS products are accretive to the company and accretive to CCS. And so as we see growth in that area, we will continue to see some margin upside.
That being said, we do continue to evaluate how we can support our customers on multiple areas such as doing complex rack integration work. And so sometimes that will be margin dilutive.”
Earnings
Celestica reported GAAP EPS of $2.31 in Q3, beating the $1.38 estimate by 67.6%. Adjusted EPS was $1.58, beating the $1.49 estimate by just 6% and representing growth of 52% YoY.
For Q4, Celestica guided adjusted EPS to be in the range of $1.65 to $1.81, which, at the $1.73 midpoint, is only marginally ahead of estimates for $1.71. This also corresponds to a slight acceleration to 55.9% growth. Looking ahead to Q1 and Q2, estimates point to 52.3% growth and 41.5% growth, decelerating in both quarters, likely driven by margin expansion slowing.
For fiscal 2025, Celestica boosted its adjusted EPS outlook by 7.3% to $5.90, from its previous forecast for $5.50 and pointing to 51% YoY growth. For fiscal 2026, Celestica outlined an initial guide for $8.20 in adjusted EPS, up 39% YoY and well ahead of estimates for $7.22.
Cash
On the other hand, cash flows are rather thin and fell to the lowest level in a year.
Operating cash flow was $126.2 million, or a 4% margin, down from 5.3% in Q2 and 4.9% in the year ago quarter. OCF growth was just 2.4% YoY and was also the lowest cash flow since the year ago quarter.
Adjusted FCF was $89 million for a 2.8% margin in Q3, up 15.6% YoY but also the lowest level since the year ago quarter. Adjusted FCF margin was down from 4.1% in Q2 and 3% in the year ago quarter.
For fiscal 2025, Celestica raised its adjusted FCF guidance slightly to $425 million, from $400 million prior, for a 3.5% margin, while capex is guided to $200 million, or 1.6% of revenue. Fiscal 2026 adjusted FCF was guided at $500 million, up 18% YoY and for a 3.1% margin, with the margin decline driven by higher capex, guided to rise 50-100% YoY to $300 to $400 million, or 2.2-2.5% of revenue.
Cash and equivalents totaled $305 million while debt totaled $728 million in term loans. Including an undrawn revolver, total liquidity is approximately $1.1 billion. Celestica’s gross debt to TTM adjusted EBITDA was 0.8x, improving by 0.1 points sequentially and 0.3 points from last year.
Inventories were $2.05 billion, up nearly 7% QoQ, while accounts receivable totaled $2.44 billion, also up nearly 7% QoQ.
Valuation
Celestica is trading just off peak multiples on the top and bottom line following this recent pullback after Broadcom’s earnings. Celestica’s forward PS is currently at 2.5x, well above the five-year average of 0.75x and 25% above the 2x multiple it commanded at the start of September. Even on the fiscal 2026 guide, shares are at a 1.9x multiple.
On a forward PE basis, shares are trading at 45.7x fiscal 2025 adjusted EPS and 32.3x fiscal 2026, well above its five-year average forward PE of 15.4x and prior resistance at 25x in late 2024 and early 2025. The company has been seeing a re-rating higher as it captures AI-growth tailwinds, but any hint of softness in growth could easily see Celestica re-rated lower given growth through 2027 is visible and may already be priced in.
Conclusion
Celestica is benefiting from strong market demand for 800G switches with its Tomahawk6-based 1.6T switches on deck for availability later in 2026. The company guided for an impressive five-point acceleration in 2026 during Q3’s report, outlining more than 31% growth to $16 billion in revenue. 2027 was implied to accelerate slightly to around 33% YoY to surpass $21 billion in revenue, again on strong switch demand, the ramp of 1.6T programs, and a new custom rack-scale solution with a digital native customer entering the picture, likely OpenAI.
However, Celestica’s valuation remains quite stretched, with the company sitting well above its five-year average multiples on the top and bottom line as shares are being re-rated higher for its visible topline acceleration and strong 40% growth momentum in CCS – this extended valuation will need to be watched considering growth expectations could be getting priced in already given the high level of visibility into 2027.
Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Recommended Reading: