Lumen Technologies, Inc.’s LUMN shares have surged 175.8% in the past year, outpacing the S&P 500 composite and the Technology Services industry’s growth of 15.1% and 45.1%, respectively.

Lumen also outperformed some of its peers like Verizon Communications VZ and AT&T T, which have registered gains of 11.8% and 55.1%, respectively. Significant increase in AI-fueled connectivity demand has been the driving force behind LUMN stock’s stellar run.

Image Source: Zacks Investment Research

Factors Favoring LUMN’s Growth

Increasing demand for Lumen's Private Connectivity Fabric (PCF) solutions amid rapid AI proliferation is emerging as an encouraging development. Lumen has secured a total of $8.5 billion in PCF deals in 2024.

As AI needs surge, large companies across various industries are urgently seeking fiber capacity, which is becoming highly valuable and potentially scarce. Lumen has inked deals with various tech giants like Microsoft MSFT, Amazon, Google Cloud and Meta Platforms to provide the network capabilities for AI innovation. Increasing demand for Lumen services, particularly for Waves and IP in its large enterprise and mid-market segments, remains a highlight. IP sales and Wave sales are up 13% each within North America’s enterprise channels.

In 2024, Lumen expanded its high-speed IP service to include 400 gig ports in 14 other markets. 400-gig Waves are available in more than 70 markets. It witnessed nearly 50% increase in 100 and 400-gig wave sales across large enterprise and mid-markets in 2024. Lumen aims to grow its total inter-city fiber miles from 12 million in 2022 to 47 million by 2028. 

Lumen Technologies, Inc. Price, Consensus and EPS Surprise

Lumen Technologies, Inc. price-consensus-eps-surprise-chart | Lumen Technologies, Inc. Quote

Lumen is focusing on expanding its network capacity while simultaneously increasing the utilization of existing infrastructure. Lumen expects to increase the overall network utilization from 57% in 2022 to 70% in 2028. The increase in utilization is fueled by growing demand from hyperscalers, which are leasing previously underutilized conduits and funding new network builds.

LUMN remains focused on “cloudifying” telecom. The continued investments in Quantum Fiber and enterprise business are encouraging. Lumen anticipates healthy momentum in the Quantum business going forward as it plans to launch Quantum Fiber quote-to-cash network architecture to customers in late 2025. The company added 42,000 Quantum fiber subscribers, taking the count to 1.1 million in the fourth quarter of 2024. Lumen added 105,000 Fiber broadband-enabled locations. As of Dec. 31, 2024, the total enabled locations in the retained states were 4.16 million. The company is targeting to achieve 500,000 enabled locations in 2025.

Lumen’s strong network capabilities and integrated hosting and network solutions are likely to promote growth in the cloud business. Its managed and cloud services are key differentiators from other players in the market. Lumen highlighted that it has more than 500 customers currently using its Network-as-a-Service (NaaS) services.

LUMN’s Cost-Cutting Efforts

Lumen continues to progress with its turnaround and is striving to boost operational efficiency. The company anticipates $1 billion in cost savings by the end of 2027 through planned infrastructure simplification across the network, product portfolio and IT. It is looking to integrate the network across all four different architectures by engineering them into one simplified, standardized network fabric. This integration will also aid in product portfolio simplification. Management expects to significantly reduce the product count from thousands of product codes to a target of nearly 300. In the current year, it expects more than $250 million of run-rate cost benefits.

Image Source: Zacks Investment Research

LUMN’s Compelling Valuation

From a valuation perspective, LUMN is trading at a massive discount. Going by its trailing 12-month price-to-sales ratio, it is trading at a multiple of 0.41, much below the industry’s ratio of 4.36.

Image Source: Zacks Investment Research

Here’s Why LUMN is a BUY

LUMN’s stellar run on the trading front has undoubtedly caught the attention of investors, prompting questions about whether to capitalize on gains or maintain a long-term investment stance.

Lumen is navigating a transformative period, aligning itself with the massive growth of AI, cloud computing and digital telecom services. Despite competition in the AI space, increasing PCF demand and deals with tech giants are creating a strong foundation for future growth. Expansion into NaaS markets is an additional tailwind. Extensive cost cuts and discounted valuation make LUMN a compelling investment opportunity.

At present, LUMN sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AT&T Inc. (T) : Free Stock Analysis Report

Microsoft Corporation (MSFT) : Free Stock Analysis Report

Verizon Communications Inc. (VZ) : Free Stock Analysis Report

Lumen Technologies, Inc. (LUMN) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research