Why Lumen Technologies Is Up 75% This Week

Broadband and fiber network operator actions Lumen Technologies (LIGHT 2.42%) rose 75.2% this week, according to data from S&P Global Market Intelligence.

The company reported an increase in new revenue deals related to artificial intelligence (AI) and also reported earnings this week. While Lumen has struggled with a heavy debt load with declining legacy businesses in recent years, the AI ​​revolution appears to offer Lumen new growth opportunities. Because of its low valuation and surprising AI news, the deep-down value stocks rallied.

Can new AI products pull Lumen out of its years-long decline?

There have been some hints in recent weeks that a breakout was coming for Lumen. On July 24, Lumen announced a deal with Microsoft (MSFT 1.06%) that Lumen would use Microsoft’s cloud tools to modernize and streamline its own technology stack, which the company said would save $20 million over the next 12 months. In addition, Microsoft has named Lumen as a strategic partner for new and existing low-latency fiber routes to connect AI data centers, which increasingly require fast connectivity between data centers. Lumen then followed on August 1 by announcing a deal with the fiber cable giant Corning (GLW 0.22%)reserving 10% of Corning’s fiber capacity for the next two years. This gave credence to Lumen’s next-generation AI networking initiative.

Then this week, Lumen put some hard numbers on its AI opportunity. On Monday, Aug. 5, it announced $5 billion in AI-related deals, as well as $7 billion in potential new deals currently under discussion.

The announcement sent shares soaring the next day. Then, after the bell on Tuesday, August 6, Lumen’s earnings report took things to another level. While Lumen’s bottom line missed expectations, the company actually beat expectations for revenue.

Some green shoots of revenue appeared to overwhelm the base rate, which the company attributed to investment in the AI ​​opportunity. Specifically, the company has separated its product set into three categories — “growing,” “growing,” and “harvesting” — based on whether the products are set for growing, falling, or somewhere in between. The growing segment continued to post positive growth, while the feeding and harvesting segments saw decelerating declines. Overall, the company’s revenue declines have slowed, perhaps indicating that a long-awaited inflection to growth isn’t too far off.

And perhaps more palatable to investors was CEO Kate Johnson’s announcement of a $1 billion cost-cutting program by 2027. So the combination of new AI deals along with a big cost-cutting plan was music for investors’ ears.

Lumen is not without its risks, but it is certainly interesting

Lumen’s gains this week are important because it was a deep value stock for which bankruptcy was a distinct possibility during the year. And even with all the current positive news, revenue and EBITDA fell last quarter, while the company still carries a hefty $18.6 billion in debt. So the stock is still risky.

But with well-funded big AI and cloud names needing more connectivity as they build more data centers, it looks like Lumen could have a new business on the rise. With his debt restructured earlier this year and the due dates being pushed back into later years, giving Johnson more time to complete his lawsuit, it looks like a lot of progress is being made.