Celestica (CLS) Q4 2025: $1 Billion CapEx Signals Multi-Year AI Infrastructure Surge
Celestica’s fourth quarter marked a strategic inflection, with record CCS segment growth and a $1 billion CapEx commitment that directly responds to surging AI infrastructure demand from hyperscalers. The company’s capital allocation and customer alignment highlight a decisive pivot toward long-term, high-visibility engagements, especially in advanced networking and AI/ML compute. Management’s raised outlook and detailed capacity roadmap anchor a multi-year growth thesis, but investor focus now shifts to execution risk as scale and complexity intensify.
Summary
- AI Data Center Tailwind: Accelerating hyperscaler demand drives Celestica’s record capital investment plans.
- Customer Concentration Intensifies: Three customers now represent over 60% of revenue, amplifying both opportunity and risk.
- Execution Focus Ahead: Scaling new capacity and maintaining profitability are critical as program complexity rises.
Performance Analysis
Celestica delivered exceptional Q4 results, propelled by its Connectivity and Cloud Solutions (CCS) segment, which now accounts for 78% of total revenue. CCS revenue surged 64% year-over-year, driven by robust demand from hyperscalers for 800G networking switches and next-generation AI/ML compute programs. The Advanced Technology Solutions (ATS) segment, comprising 22% of quarterly revenue, declined slightly due to softness in capital equipment and portfolio reshaping in Aerospace & Defense (A&D), partially offset by health tech and industrial strength.
Operating leverage and disciplined cost control translated into a record 7.7% adjusted operating margin and a 70% jump in adjusted EPS. Free cash flow reached $156 million for the quarter and $458 million for the year, exceeding guidance despite a sequential inventory build to support CCS growth. Customer concentration remains high, with three customers representing 63% of Q4 revenue, underlining both the scale of opportunity and dependency risk. Capital expenditures were $95 million in Q4 and $201 million for the year, but a step-change to $1 billion is planned for 2026 to fund major capacity expansions.
- CCS Expansion Dominates: 800G and AI/ML compute program ramps with hyperscalers drove the bulk of top-line growth.
- Profitability at Peak Levels: Margin gains reflect operational discipline and scale, not just volume growth.
- Working Capital Tightens: Inventory up to $2.19 billion, supporting future program ramps but requiring close management.
Celestica’s financial model now hinges on the durability of hyperscaler investment cycles and its ability to execute on a capital-intensive, high-mix project pipeline.
Executive Commentary
"We are experiencing an unprecedented level of demand supported by the sustained large-scale multi-year investments from our largest data center customers. We believe our company is uniquely positioned as a critical enabler of the AI ML revolution, helping to solve the most difficult challenges in the data center from advanced liquid cooling solutions throughout the rack to the transition to next generation networking platforms."
Rob Mayonis, President and Chief Executive Officer
"We now anticipate that our capital expenditures for 2026 will be approximately $1 billion, or 6% of our current annual revenue outlook. Importantly, we anticipate to be able to fully support this increase in capital expenditures through operating cash flow... These investments are a response to record bookings, accelerating growth in the scale of our existing engagements, and meaningfully improved long-term demand visibility with our hyperscaler customers."
Mandeep Chawla, Chief Financial Officer
Strategic Positioning
1. Hyperscaler-Led Growth and Visibility
Celestica’s growth is now tightly coupled to hyperscaler investment cycles, with record bookings and multi-year program awards underpinning both the Q4 beat and a raised 2026 outlook. The company’s role as a preferred partner for Google’s TPU systems and new design wins with a third hyperscaler for 1.6T networking platforms highlight its entrenched position in next-generation data center infrastructure.
2. Capital Deployment for Capacity and Capability
The $1 billion CapEx plan for 2026 is a direct response to customer-driven capacity roadmaps, focusing on U.S. (Texas), Thailand, Mexico, and Japan. Investments target manufacturing scale, advanced power, liquid cooling, and new HPS (Hardware Platform Solutions, Celestica’s design-led business) design centers, positioning Celestica to capture both scale and margin from more complex, integrated systems.
3. Business Model Evolution: From EMS to HPS
The mix is shifting from traditional EMS (Electronics Manufacturing Services, contract manufacturing of customer-designed products) to HPS, where Celestica provides design, engineering, and integration. This shift supports margin expansion and deeper customer lock-in, especially as AI/ML and networking solutions become more complex and customized.
4. Customer and Program Concentration
Three customers now account for the majority of revenue, reflecting both the scale of Celestica’s wins and the risks of dependency. The company’s willingness to invest ahead of demand is anchored in long-term contracts and collaboration, but the concentration heightens the impact of any customer-specific volatility.
5. Margin and Return Discipline Amid Expansion
Despite the capital ramp, management maintains a focus on ROIC (Return on Invested Capital), embedding margin and return hurdles into new program decisions. The company expects operating leverage and the shift to HPS to offset potential mix headwinds from enterprise growth, projecting at least 30 basis points of margin expansion in 2026 as a baseline.
Key Considerations
This quarter marks a structural pivot for Celestica, as the company transitions from cyclical contract manufacturer to a strategic AI infrastructure partner for hyperscalers. The scale and complexity of current programs, combined with record CapEx, create both upside and execution risk.
Key Considerations:
- Hyperscaler Demand Outpaces Supply: Celestica’s bookings and pipeline signal multi-year growth, but the ability to deliver on large-scale, high-mix programs is now the gating factor.
- Capital Allocation Aggressiveness: The $1 billion CapEx plan requires flawless execution and assumes continued customer follow-through on multi-year roadmaps.
- Customer Concentration Risk: Over 60% of revenue is tied to three customers, amplifying the impact of any program delays or strategic pivots by hyperscalers.
- Business Model Shift to HPS: Increased design and integration content support margin expansion, but also raise operational complexity and require ongoing engineering investment.
- Working Capital and Cash Flow Management: Inventory and receivables must be tightly managed as program scale and complexity increase, especially with free cash flow guidance held flat despite higher CapEx.
Risks
Celestica’s growth trajectory is highly exposed to hyperscaler investment cycles and execution on complex, high-mix programs. Customer concentration and supply chain constraints remain key risks, as does the potential for margin compression if inflationary pressures on silicon or other key components accelerate. Geopolitical and macro uncertainties, including trade restrictions or technology export controls, could disrupt both demand and supply chain resiliency.
Forward Outlook
For Q1 2026, Celestica guided to:
- Revenue of $3.85 to $4.15 billion, up 51% YoY at midpoint
- Adjusted EPS of $1.95 to $2.15, up 71% YoY at midpoint
For full-year 2026, management raised guidance:
- Revenue to $17 billion (+37% YoY)
- Adjusted EPS to $8.75 (+45% YoY)
- Free cash flow held at $500 million
Management cited record bookings, program ramps, and robust demand visibility through 2027, but flagged supply chain and macro uncertainty as reasons for a “high-confidence” but pragmatic guide. CCS is expected to grow ~50% in 2026, with ATS flat to up mid-single digits.
- CCS segment to remain growth engine, with networking and AI/ML compute driving upside
- ATS segment to rebound in H2 2026 as capital equipment recovers
Takeaways
Celestica’s Q4 and 2025 results confirm its emergence as a core enabler of the AI data center buildout, with multi-year demand visibility and customer alignment driving a bold capital expansion. The company’s success now hinges on operational execution, margin discipline, and the durability of hyperscaler investment cycles.
- AI Infrastructure Boom: Hyperscaler-led demand for advanced networking and compute positions Celestica for sustained, above-market growth.
- Capital and Complexity: $1 billion in CapEx and a pivot to HPS programs raise both margin potential and execution risk.
- Execution Watchpoint: Investors should monitor capacity ramp timelines, margin realization, and customer concentration as key drivers of future valuation.
Conclusion
Celestica’s Q4 marks a turning point, with hyperscaler demand, record CapEx, and a strategic shift to high-value, design-led programs anchoring a multi-year growth story. The company’s ability to execute at scale, manage risk, and maintain profitability will determine whether this AI infrastructure cycle delivers lasting shareholder value.
Industry Read-Through
Celestica’s results and commentary underscore a structural acceleration in AI data center investment, with hyperscaler customers driving unprecedented visibility and capital allocation across the supply chain. EMS and ODM peers should expect increased customer collaboration, higher CapEx requirements, and a shift toward design-led, integrated solutions as table stakes for participation in next-generation infrastructure programs. The durability of AI/ML and networking investment cycles will be a key read-through for component suppliers, power and cooling vendors, and technology partners across the data center ecosystem. Customer concentration and execution risk are rising themes for all players as hyperscalers consolidate spend with a smaller set of strategic partners.