Lumen Technologies Achieves 175.8% Stock Surge Amid Growing AI Demand
Lumen Technologies, Inc. (LUMN) has seen its shares soar 175.8% over the past year, significantly outperforming both the S&P 500 composite and the Technology Services industry, which grew 15.1% and 45.1%, respectively.
In comparison to some competitors, Lumen has outpaced Verizon Communications (VZ) and AT&T (T), whose stock rose by 11.8% and 55.1%, respectively. The primary catalyst for LUMN’s substantial rise is the rapid increase in AI-driven connectivity demand.
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Key Drivers of Lumen’s Growth
The rising demand for Lumen’s Private Connectivity Fabric (PCF) solutions is a positive development fueled by the explosion of AI. To date, Lumen has finalized $8.5 billion in PCF contracts for 2024.
As companies ramp up their AI capabilities, the demand for fiber infrastructure is rising sharply. Lumen has partnered with notable technology leaders like Microsoft (MSFT), Amazon, Google Cloud, and Meta Platforms to support their AI innovations. Additionally, Lumen’s services, especially in Waves and IP for large enterprise and mid-market customers, are experiencing significant growth. Sales of both IP and Wave services in North America’s enterprise channels grew by 13% each.
In 2024, Lumen broadened its high-speed IP service to feature 400-gig ports in 14 markets, while 400-gig Waves are offered in over 70 markets. The company reported a nearly 50% growth in sales for 100 and 400-gig waves across major enterprise and mid-markets. Lumen targets expanding its inter-city fiber miles from 12 million in 2022 to 47 million by 2028.
Lumen Technologies Price, Consensus, and EPS Surprise
Lumen Technologies, Inc. price-consensus-eps-surprise-chart | Lumen Technologies, Inc. Quote
The company aims to enhance its network capacity while improving efficiency with existing assets. Lumen anticipates increasing overall network utilization from 57% in 2022 to 70% by 2028, spurred by rising demand from hyperscale providers leasing previously underused conduits and financing new network projects.
Lumen continues its strategy to “cloudify” telecom services with ongoing investments in Quantum Fiber and its enterprise segment. It projects substantial momentum in the Quantum division and plans to introduce a Quantum Fiber quote-to-cash network architecture for customers by late 2025. In the fourth quarter of 2024, Lumen welcomed 42,000 new Quantum fiber subscribers, bringing the total to 1.1 million, while adding 105,000 Fiber broadband-enabled locations, totaling 4.16 million by Dec. 31, 2024. The objective is to reach 500,000 enabled locations by 2025.
Lumen’s robust network capabilities and integrated hosting and network solutions are positioned to boost growth in its cloud business. With over 500 current customers utilizing its Network-as-a-Service (NaaS), Lumen’s managed and cloud services distinguish it from competitors.
Lumen’s Cost-Cutting Strategies
Continuing its turnaround efforts, Lumen is focused on enhancing operational efficiency. The company forecasts $1 billion in cost savings by the end of 2027 through infrastructure simplification across its network, product offerings, and IT systems. Lumen is integrating its network across four distinct architectures into one streamlined and standardized framework, which will further streamline its product portfolio. Management anticipates reducing the product count from thousands to approximately 300, with more than $250 million in run-rate cost benefits expected this year.
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LUMN’s Attractive Valuation
In terms of valuation, LUMN currently trades at a substantial discount, with a trailing 12-month price-to-sales ratio of 0.41, which contrasts sharply with the industry’s average of 4.36.
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Rationale Behind Investing in LUMN
LUMN’s impressive performance is drawing the attention of investors, leading to discussions about whether to lock in profits or adopt a long-term investment perspective.
Lumen is undergoing significant changes, positioning itself for the explosive growth in AI, cloud computing, and digital telecom services. In spite of fierce competition in the AI sector, the growing demand for PCF and partnerships with technology leaders provide a solid foundation for future advancements. Additionally, the entry into NaaS markets serves as an advantageous trend. The combination of extensive cost reductions and attractive valuation makes LUMN a promising investment opportunity.
Currently, LUMN holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
