Lumen lights up after landing massive deals to connect AI data centers

Lumen Technologies (NYSE:LUMN) continued its recent flight to the moon after announcing it had secured $5B in new business to secure fiber service capacity, which includes connecting data centers powering artificial intelligence applications.

Lumen also revealed it is near securing another $7B in sales to meet the ever-growing demand.

Lumen shares nearly doubled on Tuesday, spiking 93% by the time markets closed. It was up another 40% during pre-market trading Wednesday. It has increased a staggering 350% since early July.

The company has announced locking down multi-year agreements with Microsoft (NASDAQ:MSFT) and Corning (NYSE:GLW) over the past few weeks.

Lumen will reserve 10% of Corning’s global fiber capacity over the next two years to interconnect AI-enabled date centers. Lumen’s Private Connectivity Fabric will also connect Microsoft data centers.

The positive developments prompted Goldman Sachs to upgrade the stock to Neutral from Sell.

“Our prior view on the stock contemplated a significant decline in Lumen’s legacy revenue stream with corresponding headwinds to EBITDA growth – and we continue to see meaningful risk of decline in these legacy businesses,” said Goldman Sachs analyst James Schneider, in a note.

“However, we believe Lumen’s latest business announcement provides the company with a well-defined, long-dated stream of cash flows that is accretive to the equity with a positive net present value,” he added. “As a result, we think the equity can sustain a higher multiple than we had previously contemplated.”

Lumen also announced its second quarter 2024 results on Tuesday after markets closed.

“Lumen has been anointed as the trusted network for AI by some of the most important technology companies on earth,” said Lumen CEO Kate Johnson during yesterday’s earnings call. “With over $5B in major partnerships inked to date and visibility to nearly $7B more in opportunities, we see the market for Lumen’s private connectivity fabric as providing a major positive momentum shift for this company.”

Seeking Alpha analyst Chris Lau has rated the stock a Strong Buy.

“The firm needs to solidify $7B in additional revenue to justify the recent stock rally,” he noted. “If it raises its adjusted EBITDA guidance for the year, the growth grade will improve.”

Lumen currently has a Hold rating from Seeking Alpha analysts, Wall Street analysts and Seeking Alpha’s Quant system, which routinely beats the market.