Lumen Technologies stock is soaring, a crash could be coming

Lumen Technologies (NYSE: LUMN) stock price has gone vertical in the past few days as the company emerged as a top player in the artificial intelligence (AI) industry. 

The stock has soared in the past two straight days, reaching a high of $6.78, its highest point since November 2022. It has jumped by more than 742% from its lowest point this year, giving it a market cap of over $5 billion.

Artificial intelligence demand

Lumen Technology is a top company in the telecom and internet solutions, especially in rural America. It operates across three brands, including its eponymous Lumen brand, Quantum Fiber, and CenturyLink. 

Lumen provides solutions to enterprise and wholesale markets while Quantum Fiber offers provides fiber internet to residential and small businesses. CenturyLink, on the other hand, offers internet, phone, and TV solutions. 

The company, which was established in 1968, has grown both organically and through acquisitions in the past few years. 

Lumen Technologies has not done well in the past few years as its stock has plunged from $22.26 in 2014 to below $1 earlier this year. This decline happened as its revenues dropped sharply, moving from over $21.4 billion in 2019 to $14 billion last year.

Lumen Technologies has also made substantial losses as the net loss peaked at over $10.2 billion in 2023. Most of this performance was mostly because of its divestitures, including that of Level 3 Parent, its Latin American business.

Additionally, Lumen Technology is a highly indebted company with over $18 billion in long-term debt. This debt comes from its past acquisitions and the fact that its business is a highly capital-intensive business.

Most importantly, it is also facing substantial competition from companies like SpaceX, which are offering low-cost internet in the US and around the world.

Artificial intelligence bandwagon

The Lumen stock price is rising because the company has now entered the popular artificial intelligence (AI) industry. In a statement, the management noted that it had secured $5 billion in new business as companies are seeking fast internet speeds. It is also working with other companies to secure $7 billion in total sales. 

One of the top partners in this endeavor was Microsoft, the biggest company in the world. To address this new business, the firm has committed to doubling its intercity network and has partnered with Corning, which will provide its fiber-dense cable. It has also created a new Custom Networks division to handle these solutions.

Therefore, the Lumen stock is surging as investors anticipate more demand for its solutions since the AI industry is still in its infancy. 

Lumen earnings download

The Lumen Technology stock price surged after the company published mixed financial results. Its revenue came in at $3.26 billion, down from $3.6 billion in the same quarter in 2023. 

Revenue dropped across most of its segments except the public sector where revenue rose to $448 million. Its business segment revenue fell from $2.98 billion to over $2.57 billion.

On the positive side, the company narrowed its loss from over $8.7 billion to $49 million in the last quarter. The latter results were mostly because of an impairment charge of over $8 billion. 

Analysts expect its next results to show that its revenue dropped by 10% to over $3.2 billion. For the year, analysts expect its numbers to come in at $12.9 billion, down by 10.7% from 2023. 

Is Lumen stock a good buy?

Lumen Technology stock price has soared in a high-volume environment. Its volume jumped from the average 22.2 million to over 255 million on Tuesday and this trend will continue this year. 

Still, there are reasons to be cautious about the company. First, in most cases, such parabolic moves don’t last for a long time since many investors will rush for the exit. Ideally, I suspect that the stock will rise for another day and then the hype will end. 

Second, recent performance shows that the AI hype is dying. Nvidia, the poster child of the AI industry has crumbled by over 20% from its highest point this year. Similarly, the Super Micro Computer stock has dropped by over 30% after results showed that its business was slowing. 

Some of the top AI companies like SoundHound AI and AITX that did well earlier this year have also fallen. 

Third, while the company’s AI opportunity is high, it will take time to benefit profitably. Additionally, as mentioned above, Lumen Technology is a highly indebted company with over $18 billion in debt that could hinder its recovery. 

Finally, technically, as shown above, the Lumen Technology stock price is highly overbought, with the Relative Strength Index (RSI) sitting at 84 and the Relative Vigor Index (RSI) and the MACD soaring to the highest point in weeks. Therefore, the stock will likely retreat and retest the key support at $3.