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The AI Hardware Stock Most Portfolios Still Don't Own
A mid-cap hardware maker is wiring the AI buildout. Earnings are coming. The setup hasn't been priced in.
Most AI infrastructure picks are crowded trades by now. But one Toronto-based hardware specialist is building the racks hyperscalers actually deploy, and its next earnings print could be the spark. Here's the setup before the broader market catches on.
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If you're looking for AI exposure that isn't a $3 trillion megacap, the most interesting trade right now sits one layer below the chips. Hyperscalers don't just buy GPUs.
They buy fully assembled racks, custom networking switches, and the boring but critical hardware that turns silicon into a working data center. That's where today's pick lives.
The company is Celestica (NYSE: CLS), and the setup ahead of its next earnings report is one of the tightest forward catalysts in the AI hardware space.
What Just Changed at Celestica
CLS has become one of the purest plays on AI data center capex outside the chipmakers themselves. The stock trades around $359, with a 52-week high near $474.
Market cap sits around $41 billion. That's not a small-cap anymore. It's a mid-large cap that the Street still treats like a contract manufacturer.
The fundamental shift here isn't a lucky quarter.
Management has been steering revenue mix toward higher-margin networking switches and rack-level systems, away from low-margin legacy assembly work. Each quarter the mix improves, the multiple expands. That's the trade.
Action: Build a position between ahead of Q2 earnings expected in late July, with room to add on any post-print pullback.
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What Celestica Actually Builds
Celestica designs and builds the hardware platforms that hyperscalers, telecom giants, and aerospace customers deploy.
Think custom 800G networking switches, AI server racks, and supply chain logistics for companies that don't want to wire data centers themselves.
The reason this matters: when Google or Meta builds a new training cluster, they don't always go to Dell or Supermicro.
They go to an ODM (original design manufacturer) like CLS that can build to spec. Celestica's Connectivity & Cloud Solutions segment is the engine, and it's the part of the business that scales fastest with AI capex.
Action: Track the CCS segment line in the Q2 release. That's the number that drives the multiple.
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Why the Setup Looks Tight Right Now
Hyperscaler capex keeps surprising to the upside.
Microsoft, Meta, Google, and Amazon collectively guided 2026 capex above. Every incremental dollar of that flows through hardware supply chains. CLS is a direct beneficiary, not a derivative one.
Networking is the bottleneck.
800G and 1.6T switching is where margins are fattest in the AI buildout. Celestica's networking exposure has been growing as a percentage of revenue, and that mix shift alone justifies multiple expansions before any volume growth.
Customer concentration is finally diversifying.
The old knock on CLS was that two customers carried the whole story. (Translation: if either hyperscaler pulled back, revenue would crater.) That's becoming less true as enterprise and aerospace contracts ramp. The risk profile is improving while growth accelerates.
Action: If the Q2 release shows the top-two customer share dropping even a couple points, that's a stronger buy signal than any revenue beat.
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The Numbers Telling the Story
Revenue mix is shifting toward AI exposure. Networking and AI-related revenue is now a meaningfully larger slice of the Connectivity & Cloud segment.
That's the line item to watch. Mix shift drives operating margin, and operating margin drives the multiple.
Free cash flow is at an inflection point. CLS has moved from a low-FCF business to one generating real cash, with in the latest reporting period.
Hardware companies that hit FCF inflection at this stage of a capex cycle tend to re-rate hard.
The buyback adds support. Management has been retiring shares through a buyback program. With the stock still reasonable relative to peers on forward earnings, every dollar of repurchases compounds.
Action: Watch the Q2 cash flow statement closely. A trailing FCF figure that crosses would force the sell-side models to reset higher.
The Valuation Problem You Shouldn't Ignore
The stock has already moved. This isn't a $144 stock anymore. It's a $359 stock that has more than doubled off its. The easy money has been made.
The next leg requires fundamentals to keep delivering, not sentiment to reprice.
Forward multiple is no longer cheap. At current levels, CLS trades at roughly. That's well above where contract manufacturers historically trade.
The market is paying for AI exposure now, which means any disappointment gets punished.
Customer concentration risk is still real. Two hyperscalers still drive a large share of revenue. If either one rebalances their supply chain or pulls capex forward into 2027, the revenue line moves fast in the wrong direction.
Action: Size the position smaller than you would for a true value name. The valuation cushion isn't there anymore.
What Needs to Happen Next
Q2 earnings beat and raise. The late-July print needs to show continued CCS segment strength and another guidance raise.
Anything less and the stock gives back recent gains. A solid beat-and-raise is the trigger for the next leg.
800G networking ramp confirmation. Look for management commentary on 800G design wins ramping into production. This is where pricing power and margin expansion show up first.
Customer diversification milestones. Any new hyperscaler win or major enterprise contract announcement matters. The market wants to see the customer base broaden before paying a true platform multiple.
Action: Mark your calendar for late-July Q2 results and listen to the call live. The Q&A is where the 800G commentary will land.
Risks Worth Taking Seriously
Hyperscaler capex digestion. If even one major cloud customer signals a capex pause in 2027 planning, this stock drops 20% in a session. It happens fast in hardware.
Margin compression from competition. Jabil, Flex, and Foxconn all want the same AI rack business. Pricing power isn't permanent in this industry, and gross margin is the first thing to crack.
Macro risk to the AI thesis. A broader rerating of AI infrastructure names, like the selloff that hit semis in late June, would take CLS down with the group regardless of company-specific fundamentals.
Action: Hedge with a paired position in a larger AI infrastructure name or a semis ETF if you want to isolate the CLS-specific alpha from the AI beta risk.
How I'd Frame the Position
Start partial, not full. Take a half position in the zone now. Hold dry powder for any pullback into the high-$300s before earnings or any post-print weakness.
Add on pullbacks, not breakouts. This isn't a stock to chase to new highs. Buy weakness. The volatility is real, and you'll get better entries if you're patient.
If you already own it. Trim if your position is now oversized relative to your portfolio. Let the rest ride through earnings. Don't sell the whole thesis on one print.
Action: Set a price alert at $340 and another at $310. Those are the two zones where I'd add aggressively.
Wiring the AI Buildout Without Betting on Chips
Celestica is the purest mid-cap AI hardware play that doesn't require betting on which chip wins. It's wiring the data centers either way.
The stock isn't cheap anymore, but the Q2 earnings setup looks tight, the networking mix shift is compounding, and the buyback adds support.
Build a position into earnings, leave room to add on weakness, and treat any pullback below your entry as an opportunity, not a warning.
Setup Scorecard
Entry Zone: $343–$369
Target: $450–$475 over 6-12 months on continued AI capex strength and a Q2/Q3 beat-and-raise
Stop Loss: Reassess below $300. That level would signal the AI capex thesis is breaking.
Catalyst Timeline: Q2 earnings late July 2026, hyperscaler Q2 capex commentary mid-to-late July, 800G design win announcements through H2
Confidence Level: Medium-High. Fundamentals support the thesis, but valuation no longer offers a margin of safety.
That's our coverage for today; thanks for reading! Reply to this email with feedback or any tech stocks you want me to check out.
Best Regards,
—Noah Zelvis
Tech Stock Insider