The rapid growth of artificial intelligence (AI) has fueled an increased demand for high-bandwidth infrastructure, and Lumen Technologies (LUMN) is well-positioned to take a leadership position in this burgeoning market. With the company’s fiber network and digital services, Lumen is poised to support the increasing connectivity requirements of the expanding AI economy. The fiber optic cable company has made significant strides in this direction, signing over $5 billion worth of partnership deals related to AI and anticipating the potential for over $7 billion more.
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Also, partnerships with major players like Microsoft (MSFT) and Corning (GLW) underline Lumen’s growing influence and fuel its optimistic outlook.
Yet, despite the stock being up over 332% in the past year, not everyone is sold on the company’s upside potential, mainly short seller company Kerrisdale Capital. Given its relatively rich valuation, investors might want to approach this stock cautiously and look for further positive developments or a better window of opportunity before jumping in.
Lumen Expanding its Network Capacity
Lumen Technologies is a technology and communications company offering integrated products and services to two sectors: Business and Mass Markets. Operating under the Lumen brand are Quantum Fiber and CenturyLink brands.
Lumen has recently announced significant partnerships to expand its network capacity and support the growing demand for Artificial Intelligence (AI) functionalities. For example, the company collaborated with Meta (META) to bolster its network capacity, effectively facilitating Meta’s AI development pursuits. As the demand for AI services across Meta’s platforms expands, Lumen aims to provide a seamless, flexible, and efficient network to meet these evolving needs.
The company is set to provide access to a significant amount of dark fiber and has secured a partnership with Corning for its next-generation fiber-dense cable. This agreement is expected to help Lumen handle the increased data processing required by AI. Lumen is also poised to more than double its U.S. intercity fiber miles, offering substantial capacity to major cloud data centers tackling AI workloads and high bandwidth applications.
The company recently announced it has locked in $5 billion in new business and is in talks to secure another $7 billion in sales opportunities to address the spike in customer demand. Lumen plans to more than double its intercity network miles over the next five years to fulfill these substantial requirements.
Lumen’s Recent Financial Results & Outlook
The company recently reported results for its second quarter of 2024. Despite a year-over-year decline of 10.7%, revenue of $3.27 billion exceeded analysts’ expectations by $20 million. However, the reported net loss for Q2 was significant at $49 million. Still, it marked improvement from the $8.7 billion net loss in Q2 2023, mainly attributable to a non-cash goodwill impairment charge. The diluted loss per share was $0.13, falling short of consensus projections by $0.08.
Following second-quarter results, LUMN’s management recently revised its financial outlook for 2024. Adjusted EBITDA is expected to be between $3.9 and $4.0 billion, a decline from the previous outlook of $4.1 to $4.3 billion. Capital Expenditures are anticipated to fall between $3.1 and $3.3 billion, an increase from the projected $2.7 to 2.9 billion.
Is LUMN a Buy?
Despite the recent 251% increase in its stock value year-to-date, Lumen is dealing with a downward trend with declining revenues and margins. This has caused some to raise serious questions about the company’s outlook.
Short sellers, like Kerrisdale Capital, have cast doubt on Lumen’s valuation and its potential benefits from the AI boom. Kerrisdale suggests that Lumen’s hype around AI is premature and its $5 billion newer business ventures are merely attempts to boost cash flow amid declining revenues and increasing liquidity concerns.
Analyst sentiment might align with that view, as Lumen Technologies rated a Moderate Sell based on the aggregate of nine analysts’ recent recommendations. The average price target for LUMN stock is $4.08, representing a potential downside of -36.65% from current levels.
Bottom Line on Lumen
With the marked rise in artificial intelligence (AI) innovation, Lumen Technologies has positioned itself as a potential front-runner in the digital and communications landscape. The company has carved a niche in the AI economy, securing over $5 billion while locking in AI-centric partnerships with giants like Microsoft and Corning. These agreements and advanced network expansion efforts underpin Lumen’s forward-looking strategy. However, despite its impressive market performance, questions remain about its valuation and the actual return on its AI investments.
With Q2 results showing a net loss and analyst outlook suggesting lackluster results in the near term, investors may want to wait for further positive developments or a better investment window for this stock.
