Celestica (CLS) Q4 2025 earnings review
AI Hypergrowth: Revenue Accelerates to +44%, FY26 Outlook Raised
Celestica delivered a blowout Q4, with revenue accelerating to 44% YoY growth (up from 28% in Q3) and Adjusted EPS jumping 70%. The driver is undeniable: Connectivity & Cloud Solutions (CCS) revenue exploded 64%, fueled by hyperscaler demand for networking and AI compute. The company raised its FY26 outlook significantly, now expecting $17.0B in revenue (vs. prior $16.0B), implying continued acceleration. However, this growth comes with a price: Celestica plans to quintuple capital expenditures to ~$1B in 2026 to support capacity, a massive bet on sustained AI infrastructure demand.
🐂 Bull Case
HPS revenue surged 72% YoY to ~$1.4B, now accounting for nearly 40% of total revenue. This high-margin segment is driving the company's operating leverage, pushing margins to 7.7% despite weakness in legacy businesses.
Celestica explicitly named Google as a strategic partner for Tensor Processing Unit (TPU) systems, announcing capacity expansion in the U.S. and Southeast Asia specifically to support Google's AI infrastructure. This validates their technical capabilities beyond generic ODM work.
🐻 Bear Case
Management announced a massive increase in 2026 CapEx to $1.0B (approx. 6% of guided revenue), compared to ~$201M in FY25. While funded by cash flow, this 5x surge in spending significantly raises the risk profile if hyperscaler demand cools.
Concentration risk is intensifying. In Q4, three customers accounted for 63% of total revenue (36%, 15%, 12%), up from ~53% a year ago. The company is effectively a leveraged play on the capex budgets of three hyperscalers.
⚖️ Verdict: 🟢🟢
Strong Bullish. The acceleration in revenue from 20% early in the year to 44% in Q4, combined with a guidance raise, signals Celestica is capturing significant AI hardware market share. The Google TPU announcement is a major validator. While the CapEx spike warrants monitoring, it reflects confident, committed demand.
Key Themes
CCS Segment Hypergrowth
Connectivity & Cloud Solutions (CCS) has completely decoupled from the rest of the business. Revenue grew 64% YoY to $2.86B. This segment now dwarfs the legacy ATS business. The growth is driven by 'stronger than anticipated operating leverage' and insatiable demand for data center switches and compute.
Google TPU Program & 1.6T Wins
The press release explicitly highlights investments to support 'Google Tensor Processing Unit (TPU) systems' with completion in 2027. Additionally, Celestica announced a third 1.6T switching program award with a hyperscaler. These specific wins provide multi-year visibility and justify the aggressive CapEx plan.
Capex Shock
Celestica plans $1B in capital expenditures for 2026, a dramatic departure from the ~$200M run-rate in 2025. Management claims this will be 'fully funded organically,' but it will heavily compress Free Cash Flow conversion in the near term unless Operating Cash Flow scales proportionally.
ATS Segment Stagnation
While CCS flies, the Advanced Technology Solutions (ATS) segment remains stuck in neutral. Revenue declined 1% YoY to $0.80B. However, profitability is improving: ATS segment margin expanded to 5.3% from 4.6% YoY, indicating successful portfolio pruning of lower-margin contracts.
Margin Expansion Continuation
Despite the rapid revenue ramp (which often pressures margins due to startup costs), Adjusted Operating Margin expanded 90bps YoY to 7.7%. Guidance for Q1 2026 is 7.8%, suggesting the company has not yet hit its margin ceiling.
Other KPIs
Accelerating. HPS revenue grew 72% YoY, accelerating from 65% in the year-ago quarter. This proprietary/design-led revenue stream is the key differentiator for Celestica vs. standard EMS peers.
Stable. Up from $306M in FY24. However, with the $1B CapEx plan for 2026, investors should expect FCF pressure next year even if OCF grows.
Accelerating risk. Concentration increased from ~53% in 24Q4. The top customer alone (likely Google or a major hyperscaler) represents 36% of total revenue.
Guidance
Accelerating. Midpoint ($4.0B) implies ~51% YoY growth vs Q1 2025 ($2.65B). This is faster than the 44% growth seen in Q4.
Accelerating. Raised from prior outlook of $16.0B. Midpoint implies ~37% YoY growth for the full year, compared to 28% growth in FY25.
Accelerating. Raised from prior outlook of $8.20. Implies ~45% YoY growth vs FY25 ($6.05).
Stable/Rising. Improving from 7.7% in Q4 2025 and 7.1% in Q1 2025.
Key Questions
CapEx ROI & Utilization
You are increasing CapEx 5x to $1B in 2026. Can you break down how much of this is 'committed' capacity versus speculative building, and what is the target revenue capacity this $1B investment unlocks?
Google TPU Margin Profile
With the explicit mention of the Google TPU expansion, how does the margin profile of these compute system engagements compare to your historical HPS margin average? Is this margin-accretive or dilutive at ramp?
ATS Growth Turnaround
ATS revenue remains negative YoY (-1%). With the new 2026 outlook raised significantly, does this assume any contribution from an ATS recovery, or is the raise purely CCS driven?
Supply Chain Constraints
With revenue growing 50%+ YoY in Q1 2026, are you seeing any component shortages (e.g., liquid cooling components, power management chips) that could cap your upside?
Customer Concentration Risk
Your top customer is now 36% of revenue. Are there contractual protections (minimum volume commitments) in place to protect Celestica if this specific customer enters a digestion phase?