A Lumen executive talks AI, Verizon's fiber deal - and meme-stock status

By Emily Bary

MarketWatch recently caught up with Lumen CFO Chris Stansbury, who discussed the opportunities ahead in AI and consumer fiber

While Lumen Technologies Inc. shares have cooled a bit off their peak levels from a month ago, they've still maintained much of their artificial-intelligence boost - and Chief Financial Officer Chris Stansbury sees more opportunity ahead.

The telecommunications and fiber stock lit up during the summer as Lumen (LUMN) announced that it planned to monetize its conduit by working with artificial-intelligence players looking to connect data centers. The company announced $5 billion in AI business already signed and said that there could be opportunity for $7 billion more.

Lumen shares, which had briefly been trading below $1 in June, are now up 500% from that low.

See also: How Lumen transformed from a 99-cent stock into the latest AI craze

Part of that enthusiasm came from meme traders, who saw momentum in a stock that had been a popular play among short sellers. "There were some fun parts" to being a meme stock, Stansbury told MarketWatch last week.

"Over the last couple of years, we've done a lot of hard work and with not a lot of positive news around it," Stansbury said. "The debt, cutting the dividend and whatnot. So to be in a position for a little while where people could celebrate the bigger Lumen team working around the clock to transform the company ... it was great."

But Stansbury doesn't see the excitement as a flash-in-the-pan meme moment. Rather, he's betting that Lumen will be able to continue to take advantage of the growing need for connectivity, especially in the AI era.

"There's a race among the tech companies to get those algorithms trained, because there's obviously a first-mover advantage there," he explained. That means "a huge need for high-speed, low-latency connectivity between all these data centers."

He says that while the market has paid attention to data centers and power grids themselves, "there hasn't been a lot of conversation about the connectivity piece, and so that's what's driving this today."

Lumen still faces skeptics. FactSet lists only one bullish sell-side analyst covering the stock, out of 15 total, and they're not from a major bank. Four of those covering analysts hold sell ratings.

Stansbury says that Lumen has taken a different approach than its peers and thinks that could be why sell-side analysts, who also cover those rivals, aren't buying into Lumen's strategy.

"Everyone else that we compete with is looking at the enterprise space as commoditized and one that should be managed for cash," he said.

Analysts seem similarly sour on the enterprise market, but Stansbury thinks Lumen's contrarian approach could pay off.

"From a competitive opportunity standpoint, as we continue to execute on this, we're not facing resistance from others, and the value that we're bringing to to customers is significant," he said.

The AI deals are allowing Lumen to address its steep debt burden, even though some on Wall Street are doubtful they'll lead to meaningful revenue opportunities beyond the upfront payments. Gregory Williams of TD Cowen wrote back in July that the arrangements "may not move the needle much" on metrics like revenue or adjusted earnings before interest, taxes, depreciation and amortization.

MarketWatch caught up with Stansbury while he was in New York for a Bank of America conference, and he's noticed a shift in the mood nowadays when he addresses investors. Before, Lumen conference presentations were dominated by debt talk. Now, investors want to hear about business strategy.

That goes beyond AI. Lumen plays into the trend of getting fiber to the home, and it's been growing its footprint recently. Now, consumer fiber is an increasingly trendy part of the telecommunications sector - as evidenced in part by Verizon Communications Inc.'s (VZ) announcement last week that it intends to scoop up Frontier Communications Parent Inc. (FYBR) in a $20 billion deal.

See also: Verizon plans big fiber bet with $20 billion Frontier deal. Does it make sense?

"We believe that's validation that what we've been saying all along is accurate," Stansbury said. And with "more and more consolidation activity" in the market, he thinks there will be growing interest in Lumen's consumer-fiber assets.

-Emily Bary

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09-12-24 1523ET

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