Celestica Inc. reported strong second-quarter financial results for 2025, significantly exceeding analyst expectations and leading the company to raise its full-year guidance. The performance was largely driven by robust demand from hyperscaler customers within its Connectivity & Cloud Solutions segment, particularly in areas related to artificial intelligence (AI) infrastructure. Following the announcement, the stock advanced nearly 17%, reflecting increased investor confidence in the company's strategic positioning within the rapidly expanding technology solutions market.

Executive Summary

Celestica Inc. (TSX:CLS, NYSE:CLS) reported strong second-quarter financial results for 2025, significantly exceeding analyst expectations and leading the company to raise its full-year guidance. The performance was largely driven by robust demand from hyperscaler customers within its Connectivity & Cloud Solutions segment, particularly in areas related to artificial intelligence (AI) infrastructure. Following the announcement, the stock advanced nearly 17%, reflecting increased investor confidence in the company's strategic positioning within the rapidly expanding technology solutions market.

Second Quarter Performance Highlights

For the quarter ended June 30, 2025, Celestica achieved revenue of $2.89 billion, a substantial 21% increase compared to $2.39 billion in the second quarter of 2024. This figure surpassed the high end of the company’s guidance range. Profitability also saw significant gains, with GAAP earnings from operations as a percentage of revenue rising to 9.4% from 5.6% in the prior year period. The adjusted operating margin reached 7.4%, marking a new high for the company, compared to 6.3% in Q2 2024.

Adjusted earnings per share (EPS) stood at $1.39, a 54% increase from $0.90 in Q2 2024, also exceeding expectations. GAAP EPS was reported at $1.82, up from $0.80 year-over-year. During the quarter, Celestica repurchased 0.6 million common shares for $40.0 million.

Hyperscaler Demand Fuels Growth

The primary catalyst for Celestica's strong performance was intensified demand within its Connectivity & Cloud Solutions (CCS) segment. This segment recorded revenue of $2.07 billion, an increase of 28% compared to Q2 2024, with a segment margin of 8.3%. Within CCS, Hardware Platform Solutions (HPS) revenue surged by 82% year-over-year to approximately $1.2 billion, accounting for 43% of the company's total revenue. This growth was directly attributed to the escalating demand for data center hardware supporting AI and machine learning applications, including the ramping of 800G networking switch programs and continued strong demand for 400G switches.

Rob Mionis, President and CEO of Celestica, stated:

"We achieved very strong results in the second quarter, with revenue of $2.89 billion and non-GAAP adjusted EPS of $1.39, representing growth of 21% and 54%, respectively, each exceeding the high end of our guidance ranges. This performance was bolstered by strong adjusted operating margin of 7.4%, another new high for the company, demonstrating the strength of our execution."

Building on these results, Celestica increased its full-year 2025 outlook. The company now anticipates revenue to reach $11.55 billion, an increase from the prior estimate of $10.85 billion, representing a projected 20% year-over-year growth. Adjusted EPS guidance was raised to $5.50 from $5.00, indicating a 42% year-over-year increase. Both new projections surpassed Street consensus estimates of $10.99 billion in revenue and $5.08 in EPS. The adjusted operating margin outlook for the full year also increased to 7.4% from 7.2%, and non-GAAP free cash flow is now expected to be $400 million, up from $350 million.

Strategic Positioning in the AI Infrastructure Market

Celestica has established itself as a significant participant in the expanding AI infrastructure market. The proliferation of AI-based applications and generative AI tools is driving substantial investments across the technology ecosystem, thereby increasing demand for enterprise-level data communications and information processing infrastructure products such such as routers, switches, data center interconnects, edge solutions, servers, and storage-related products.

The broader market context underscores the significance of Celestica's performance. The AI infrastructure market is projected to reach $223.45 billion by 2030, growing at a compound annual growth rate of 30.4% from 2024 to 2030, according to Grandview Research. Furthermore, Bloomberg Intelligence estimates the generative AI market could expand to $1.3 trillion over the next decade from just $40 billion in 2022. Global AI spending is forecast to grow by 31.9% from 2025 to 2029, with spending on agentic AI potentially reaching $1.3 trillion by 2029, accounting for 26% of global IT spending, as reported by the International Data Corporation (IDC). Celestica's strategic focus includes diversifying its customer base, expanding capabilities in liquid cooling and AI infrastructure, and leveraging its comprehensive design and engineering expertise in its HPS business.

Analyst Perspectives and Future Outlook

The upward revisions in Celestica's guidance, coupled with strong Q2 results, have fostered a bullish sentiment among analysts. An analyst from RBC noted:

"Celestica has 'high confidence' in its guidance, as customer orders exceed guidance. This suggests upside is likely, in our view."

This sentiment aligns with broader market trends where analysts have shown increased optimism for the S&P 500's full-year earnings estimates, with upward revisions observed across various sectors including Information Technology and Communication Services. The forward 12-month Price-to-Earnings (P/E) ratio for the S&P 500, currently at 22.1, remains above its 5-year average of 19.9 and 10-year average of 18.5, indicating a premium valuation reflective of positive market sentiment and expected future earnings growth.

Looking ahead, while Celestica's trajectory appears strong, the company continues to manage customer concentration risks. In Q2 2025, two customers collectively represented 44% of total revenue. A 37% decrease in enterprise end market revenue due to an anticipated technology transition with a hyperscale customer illustrates the potential impact of such concentration. Investors will monitor the company's efforts to diversify its customer base and expand its service offerings to sustain its growth momentum in the dynamic AI-driven data center market. The company’s continued ability to adapt to technological shifts and capitalize on emerging opportunities within the AI infrastructure segment will be key to its long-term financial health.