CLS: Could OpenAI Jalapeno be bigger for Celestica than Google TPU? And how sustainable is the business?

We rate Celestica (CLS.US) Outperform with a $520 price target, implying ~39% upside. We believe the impact of OpenAI Jalapeno on Celestica is being substantially mismodeled; many investors benchmark Jalapeno to Google TPU, which is misleading in two ways. First, OpenAI's design seeks to bypass the scale-out layer to maximize the scale-up domain, raising the importance and complexity of scale-up switches and thereby Celestica's value add and profit dollars. Second, Jalapeno is a full-rack program, so the consignment model pushes more component revenue through Celestica's P&L, making revenue elasticity far greater than TPU. We estimate Jalapeno is a ~$5M rack with ~$2.2M of non-accelerator Celestica content, so a 1.3 GW deployment implies ~5,600 racks and ~$11.6B in revenue opportunity. Across Google TPU, OpenAI Jalapeno, AMD Helios and 1.6T switching, we see ~$25B in YoY revenue growth for 2027;