We came across a bearish thesis on Lumen Technologies, Inc. (LUMN) on Twitter by RadnorCapital. In this article, we will summarize the bulls’ thesis on LUMN. Lumen Technologies, Inc.’s share was trading at $6.13 as of Oct 22nd. LUMN’s trailing P/E was 10.49 according to Yahoo Finance.
A businessman looking up in awe at the top of a telecom tower as it spreads its vast interconnectivity.
Kerrisdale Capital is short on Lumen Technologies ($LUMN) despite the company’s recent 400% stock surge, asserting that AI won’t save this over-leveraged and struggling telecom. Although Lumen has announced new deals, Kerrisdale believes these will not reverse the ongoing decline in sales and margins, especially with a staggering $19 billion debt burden. The deals, marketed as “AI-driven Custom Networks” for major tech companies such as Microsoft, are essentially large-scale construction projects that will only generate approximately $800 million over three years. This cash inflow does little to address Lumen’s fundamental lack of growth.
While Lumen’s shares have risen by $5, the new deals contribute only about $1 per share in largely non-recurring value. The company’s recent financial performance reflects deeper issues, with EBITDA dropping by 13% and next year’s guidance suggesting further declines. Despite this, Lumen’s stock is currently being valued on par with growing, dividend-paying telecom peers, which showcases significant mispricing.
The timing of these deals coincided with Lumen’s poor second-quarter earnings, helping to distract the market from the core business’s sharp revenue decline of 9%. However, this decline is not limited to legacy operations; even the company’s “Grow” products, once expected to drive future growth, have experienced a 1% year-over-year sales drop. Interviews with former executives have painted a troubling picture, revealing that despite significant investments, Lumen’s “Grow” software products are uncompetitive against leading providers in security, SD-WAN, and unified communications. To preserve contract values, Lumen has resorted to partnering with tech companies to bundle third-party software, a move that erodes customer value and compresses margins.
Lumen’s management has expressed a desire to shift from being a telecom to a technology company, but it seems as if this transition is failing. Gartner no longer lists Lumen as a leader in global network services, and its absence from key industry rankings highlights the company’s decline. With the focus still on laying dark fiber—essentially selling “dumb pipes”—Lumen’s strategy appears increasingly flawed. Kerrisdale believes that AI-driven deals will not reverse Lumen’s fortunes, and the much-touted $7 billion in potential “sales opportunities” are unlikely to materialize. As the hype fades, Kerrisdale expects investors will once again focus on the deteriorating fundamentals of Lumen’s core telecom business.
Lumen Technologies is an over-leveraged company struggling with declining revenues and margins, making its recent stock surge seem disconnected from its underlying financial reality. The challenges in transitioning to a technology-oriented business model, compounded by significant debt and competitive disadvantages, further reinforce the negative outlook on the company.
Lumen Technologies, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held LUMN at the end of the second quarter which was 18 in the previous quarter. While we acknowledge the risk and potential of LUMN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LUMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.