Nvidia's market value reaching $5.8 trillion has highlighted the massive expectations around artificial intelligence (AI) transforming the economy. While Nvidia dominates with its processors, the AI boom benefits a broader ecosystem, including networking gear, servers, and other hardware. Celestica (TSX: CLS), a Canadian company, stands out as it supplies essential components for expanding data centers.
Celestica's recent financial performance shows significant growth. Its second-quarter revenue surged 62% year over year to $4.7 billion, with adjusted earnings per share (EPS) rising to $2.54 from $1.39. Operating margins improved to 8.2% from 7.4%. However, free cash flow was relatively modest at $147.1 million, reflecting the high costs of rapid expansion.
The company's management projects 2026 revenue of $20.5 billion and adjusted EPS of $11.30. At its current price, Celestica trades at roughly 34 times that earnings guidance, raising questions about valuation. Investors must weigh the potential for continued earnings growth against the risks of market volatility and execution challenges.
While Prime Minister Mark Carney emphasized Canada's strengths in AI and related fields, Celestica's success hinges on company-specific factors. Large customers could cut spending, data center construction could slow, and new programs might face execution issues. Investors should consider their tolerance for volatility, as Celestica does not pay dividends and relies on earnings growth and share price appreciation.