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Celestica Inc., a Toronto-based technology manufacturer, has reported exceptional fourth-quarter earnings, exceeding analyst expectations, yet its stock has experienced a notable decline. The company, which specialises in data-centre equipment, has announced plans to significantly increase capital expenditures, raising questions about the sustainability of AI investment and market trends.
Strong Financial Performance
In its latest earnings report, Celestica revealed revenues of US$3.7 billion for the quarter, marking a remarkable 44 per cent increase compared to the same period last year and surpassing the analyst consensus of US$3.5 billion. For the entire fiscal year, the company reported revenues of US$12.4 billion, a 28 per cent rise from 2024, while adjusted earnings per share rose to US$6.05, reflecting a substantial 55 per cent growth.
The surge in demand for Celestica’s products can be traced back to the rapid expansion of AI technologies, particularly since the launch of OpenAI’s ChatGPT in November 2022. The company has witnessed its stock price soar by approximately 2,500 per cent during this period, driven by a surge in data-centre construction to accommodate burgeoning AI development.
Investor Sentiment Shifts
Despite these impressive financial results, Celestica’s stock plummeted by around 15 per cent on the Toronto Stock Exchange by midday Thursday. This reaction is indicative of a broader shift in investor sentiment regarding the sustainability of AI spending, which Gartner Inc. estimates at around US$1.4 trillion globally for this year.
Celestica’s announcement to more than double its capital expenditures to US$1 billion—representing 6 per cent of projected 2026 revenue—has raised eyebrows. Previously, the company had intended to allocate up to US$400 million for capital investments. Increased spending, while aimed at expanding operations to meet customer demand, introduces risks, particularly when the financial benefits of AI investments remain uncertain.
During an earnings call, Chief Financial Officer Mandeep Chawla expressed confidence in the company’s outlook. “We have no hesitation in increasing our cap ex,” he stated, a sentiment echoed by Chief Executive Rob Mionis, who noted unprecedented demand from major data-centre customers.
Market Dynamics and Comparisons
Celestica’s growth trajectory stands in stark contrast to other tech firms. The company collaborates closely with hyperscalers, including giants like Google and Meta Platforms Inc. This advantageous position has helped Celestica become a preferred manufacturing partner for Google’s proprietary chip systems, with Mionis asserting that there are no signs of competition encroaching on this relationship.
However, as concerns mount about whether companies will sustain their spending on data-centre infrastructure amidst increasing debt levels—evident in firms like Oracle and Meta—the market’s reaction has become more cautious. Notably, when Meta announced ambitious AI infrastructure plans, its stock fell by 11 per cent on the same day.
While Celestica’s financial health is solid, the absence of a diverse revenue stream, such as that enjoyed by companies reliant on digital advertising, places it in a precarious position. If enthusiasm for AI were to wane, Celestica could face significant challenges.
Analyst Perspectives
Despite the stock’s decline, some analysts remain optimistic about Celestica’s future. Thanos Moschopoulos from BMO Capital Markets believes the company’s increased capital expenditure reflects strong demand visibility extending to 2027 and beyond. He acknowledges that while AI spending may eventually slow, there are currently no indicators suggesting an imminent decline.
In contrast, the market’s apprehension concerning Celestica’s capital plans could stem from a broader trepidation regarding data-centre investments. The recent volatility in stock prices of other tech giants has only amplified this uncertainty, leading to cautious investor behaviour.
Why it Matters
Celestica’s situation encapsulates the current complexities of the tech market, particularly regarding AI investments. While the company is experiencing significant growth, the fluctuating investor confidence signals deeper concerns about the sustainability of the AI boom. As technology firms navigate these turbulent waters, the balance between expanding operations and maintaining investor trust will be crucial. The outcome of this balancing act could set the tone for future investments in AI and data-centre infrastructure, making Celestica’s trajectory a key indicator for the industry at large.
