Why Celestica’s shares are down despite surging demand for its AI equipment

To understand the uncertainty around artificial intelligence spending, look no further than Celestica Inc. CLS-N

The Toronto-headquartered company had a great year by all accounts, thanks to strong demand for data-centre equipment it manufactures. Celestica blew past analyst expectations when it announced fourth-quarter earnings after market close on Wednesday, boosted its financial outlook and announced plans to increase capital expenditures to keep up with customer demand.

Nevertheless, Celestica’s stock fell some 15 per cent on the Toronto Stock Exchange by midday Thursday. The selloff may reflect a change in how markets are thinking about AI spending.

Celestica earned US$3.7-billion in revenue during the quarter, a 44 per cent increase over the same period last year, beating the analyst consensus of US$3.5-billion. Full-year revenue totalled US$12.4-billion, a 28 per cent jump compared to 2024. Adjusted earnings per share for the year grew roughly 55 per cent to US$6.05.

Celestica builds networking switches and other equipment for data centres, and has seen its business take off since OpenAI released ChatGPT in November, 2022. Its share price has skyrocketed some 2,500 per cent since then, as growing AI development and adoption kicked off a wave of data-centre construction, creating demand for Celestica’s products.

But investors are increasingly worried about whether record spending on AI infrastructure – about US$1.4-trillion worldwide this year, according to Gartner Inc. – is sustainable, or whether it amounts to a giant financial bubble.

What may be causing investors concern is Celestica’s plan to more than double its spending to US$1-billion (or 6 per cent of 2026 revenue) to expand operations in response to intense customer demand. Previously, Celestica aimed to allot up to US$400-million. More spending can bring more risk, especially when the financial returns from AI are not entirely clear.

Celestica is confident in its outlook. “We have no hesitation in increasing our cap ex,” chief financial officer Mandeep Chawla said on an earnings call Thursday, a view supported by chief executive Rob Mionis.

“We are experiencing an unprecedented level of demand supported by the sustained, large-scale, multiyear investments from our largest data-centre customers,” Mr. Mionis said on the call. Celestica raised its outlook for 2026, too, projecting US$17-billion in revenue.

Earlier: Celestica becomes Canada’s third most valuable tech company as stock surges

The company works directly with hyperscalers, the term for the largest tech companies, and Google GOOGL-Q and Meta Platforms Inc. META-Q are among its customers. Celestica is the preferred manufacturing partner for Google’s proprietary chip system, and Mr. Mionis said Thursday there is no indication that competitors are muscling in on that relationship.

The company’s rise reflects the shifting fortunes in the AI boom, where hardware is crucial. Celestica’s market cap has been edging closer to that of Constellation Software Inc., Canada’s second-largest tech company. Constellation, which acquires tech companies that build software for niche industries, has seen its share price fall 45 per cent in the past year over fears that sophisticated AI coding tools will make customers less reliant on the company’s products, and allow competitors to win business.

Celestica’s switches are not easily reproduced commodities, however, and the company spends millions on research and development each year. “Customers now are viewing us less as a supply-chain partner and more as a technology leader,” Mr. Mionis said Thursday.

So why is Celestica’s stock falling?

“Some might perhaps interpret the higher capex guidance as a negative,” said Thanos Moschopoulos, an analyst with BMO Capital Markets, a view echoed by RBC Capital Markets analyst Paul Treiber in a note Wednesday.

Since the fall, investors have become more concerned with the sustainability of spending on data centres. Companies such as Oracle and Meta are taking on debt to fund these facilities, while Nvidia’s influential role in financing the AI ecosystem is under scrutiny. Meanwhile, it’s not entirely clear when these investments will pay off.

As a result, markets have become more skittish when companies announce plans to spend even more money on data centres. In October, Meta CEO Mark Zuckerberg talked about “aggressively” building out AI infrastructure. Investors sent the stock price down 11 per cent that day.

Investors may have already gotten over their concerns about Meta, to be fair. The company said Wednesday its AI-related spending this year will be between US$115-billion and US$135-billion, nearly twice what it spent in 2025. Meta’s stock price is up 9 per cent today, though it is buoyed by strong revenue growth in online advertising.

Celestica is different. So much of its recent growth is tied to AI and it doesn’t have a gargantuan business like digital ads to fall back on should AI enthusiasm wane.

Mr. Moschopoulos, for one, is not worried about Celestica’s spending plans. “Celestica emphasized that it’s supported by bookings and strong demand visibility into 2027 and beyond,” he said.

AI expenditures will slow down at some point, he continued. “For the time being, there are no signs of that.”