Lumen Technologies (NYSE:LUMN), a global communications services stock, has been getting a fair bit of attention on Reddit lately. The company recently partnered with Microsoft to bolster its capabilities to serve AI demand. Lumen shares are down more than 90% from their all-time high in 2007, but are up more than 200% since announcing their deal with Microsoft.
After Google's Gemini sidelined Reddit's most popular stocks today, I had to scroll through the trends alone. A quick search on r/wallstreetbets, the subreddit at the epicenter of the pandemic meme stock boom, turned up multiple mentions of $5.45 billion market cap Lumen Technologies (NYSE:LUMN), a global communications services stock that has been garnering considerable attention across investing subreddits since announcing a partnership with Microsoft (NDAQ:MSFT) on July 24.
Through the partnership, Lumen will integrate Microsoft cloud and artificial intelligence (AI) technologies to optimize its operations, which is expected to increase cash flow by $20 million over the next year, while Microsoft will use Lumen to improve the stability, capacity and performance of its datacenter network to better serve growing AI demands.
Lumen's shares have risen 222.37 percent since the announcement, rekindling interest in the fiber network specialist and the potential business opportunity. The company's shares have fallen nearly 90 percent from an all-time high of $49.45 in 2007 to just $5.38 per share in recent trading.
From a balance sheet perspective, Lumen looks unattractive, as evidenced by a five-year consecutive decline in revenue, from US$21.4B in 2019 to US$14.45B in 2023, primarily due to COVID-19, management changes and subsequent divestitures from Canada, the US and Europe, Middle East and Africa.
But the company sees this trend reversing, having recently secured up to $5 billion in AI deals and another $7 billion in discussions, including a project with Microsoft, and president and CEO Kate Johnson believes Lumen is on the cusp of “one of the biggest expansions in the history of the internet.”
According to Statista, the global AI market will grow more than fourfold from US$184 billion in 2024 to US$826.73 billion in 2030, providing a strong tailwind for Lumen to leverage Microsoft's capabilities to grow its market share.
If you're interested in building a position in Lumen Technologies for the long term, look for operating expenses to decline and for gross margins and free cash flow to trend upward before growing beyond their nominal allocations.
If you want to invest in Lumen in a short-term trade, look for a rebound from Wednesday's Q2 2024 earnings report, which sent the company's shares down more than 18% in trading on Thursday.
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(Top photo: Kate Johnson, CEO of Lumen Technologies)
