Lumen said it will haul in billions from upcoming AI deals
Lumen is suddenly the hot stock for the tech and telecom obsession with AI. The telco's recent flurry of deals related to AI has taken its stock to new heights; its shares were up $2.41 (93.05%) to $5.00 in regular trading on Tuesday.
Before that, Lumen's shares were already on a roller coaster. During the first half of the year, the company's shares lost more than 40% of their value and then surged to climb more than 150% during the month of July. In April, Light Reading reported that thanks to Lumen's heavy debt load and wobbly share price, the telco was definitely in distress.
AI buzz building
On July 24, Lumen announced a strategic partnership with Microsoft. In this partnership, Lumen will use Microsoft's cloud for its own digital transformation and help Microsoft expand its network "and capability to meet the growing demand on its data centers due to AI."
Lumen's market cap, even after the recent stock surge, is just under $3 billion. Microsoft's is just under $3 trillion.
On August 1, Lumen announced an agreement with Corning, in which it reserved 10% of Corning's global fiber capacity for the next two years to facilitate the buildout of its network to interconnect AI-enabled data centers. Corning said its newest fiber-dense cables "will more than double Lumen's U.S. intercity fiber miles."
On Monday, Lumen announced it had "secured $5 billion in new business driven by major demand for connectivity fueled by AI." In the same announcement, the company said it was "in active discussions with customers to secure another $7 billion in sales opportunities to meet the increased customer demand."
Lumen has a massive and growing nationwide fiber network and extensive infrastructure assets. A network tour must be like walking through an old cemetery, seeing the headstones of Qwest, Level 3 Communications, Broadwing, WillTel, CenturyLink, Global Crossing, 360networks and more – all the telcos and fiber providers Lumen absorbed as it metastasized over the years.
Even if parts of that network are dated, Lumen is investing in expanding its reach, upgrading its fiber and adding capacity to existing routes. This activity creates a huge barrier to entry for any other company trying to offer network-as-a-service (NaaS), edge computing or data center interconnect.
Filling in the details
In its most recent announcement, Lumen didn't say who was buying the capacity or what applications they were using it for. No timelines were given for those billion-dollar revenue deals and discussions.
In the short term, Lumen doesn't need to have all the answers about how or if AI will help most companies. It just needs to ensure plenty of jeans, picks and shovels are available while prospectors pan for gold.
Meanwhile, on Tuesday AI infrastructure was the central talking point for Lumen execs as they reported lower than expected Q2 earnings and a lower annual earnings projection.
According to eight analyst estimates compiled by Seeking Alpha, Lumen was expected to report a $0.04 per share loss on revenues of $3.25 billion. The telco reported a (non-GAAP) loss of $0.13 a share on revenues of $3.27 billion.
The company's EBITDA (earnings before interest, taxes, depreciation and amortization) is expected to be $3.9 billion to $4 billion for the year, down from the earlier $4.1 billion to $4.3 billion projection.
"The rising demand of AI is requiring greater connectivity between data centers, and Lumen's world class fiber network and forward-thinking digital services are positioning us to help drive the AI growth wave," said Lumen's CEO Kate Johnson in the company's earnings press release. "We feel confident in our future growth and business transformation as we look to enable the AI economy."
After the markets closed, Lumen shares continued to surge as Johnson's words resonated with investors hungry for any positive angle on AI and its unproven transformative properties. Lumen shares shot up another $3.77 (75.40%) to $8.77 in after-hours trading on Tuesday, as of about 5:30 PM ET.
