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Celestica (CLS) Surges 274% in a Year: Should You Ride the Wave?

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Buoyed by solid AI traction, Celestica Inc. (CLS - Free Report) has gained a stellar 274.1% over the past year compared with the industry’s growth of 23%. It has also outperformed its peers like Flex Ltd. (FLEX - Free Report) and Jabil Inc. (JBL - Free Report) over this period. 

Operating primarily as a behind-the-scenes partner for other electronics businesses, Celestica is among the lesser-known winners of the AI revolution. The Toronto, Canada-based company offers a one-stop shop for the electronics market, from design to manufacturer to supply chain management. With a diverse portfolio of products that form an integral part of AI applications, Celestica’s remarkable transformation in recent years offers a competitive edge across the broader technology market.

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What Lies Behind This Meteoric Rise

Celestia had largely been a beneficiary of the ongoing generative AI boom, thanks to the solid demand trends 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 transformational 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.

Is the Growth Sustainable?

With the proliferation of AI-based applications and generative AI tools, business enterprises are being increasingly forced to scale future computing platforms to address the burgeoning AI workloads with low-power, high-bandwidth data transfer. This, in turn, is leading to an exponential growth in I/O bandwidth. Per a KBV research report, the Global Silicon Photonics market size is expected to reach $7.5 billion by 2030.

In order 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

Earnings estimates for Celestia for 2024 have moved up from $2.91 to $3.32 over the past 90 days, while the same for 2025 has improved from $3.25 to $3.64. The positive estimate revision depicts optimism about the stock’s growth potential. This is further corroborated by rising investments by various institutional investors and hedge funds, who together own about 67.4% of the company's stock. 

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CLS Trading at a Premium

The company is currently valued at a premium compared to its industry on a forward 12-month P/E basis.

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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 well poised for sustained growth over the years, eclipsing the likes of NVIDIA Corporation (NVDA - Free Report) , backed by its robust infrastructure investments, solid technology know-how and wide industry experience spanning three decades.

However, investors should wait for a better entry point to buy this stock as it is currently trading at a premium based on valuation metrics. With a Zacks Rank #3 (Hold), Celestia appears to be treading in the middle of the road and investors could be better off if they trade with caution.   

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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