Lumen’s high-stakes fiber bet could pay off
Key points: Lumen Technologies has shed assets and cut debt after it narrowly skirted bankruptcy. The company is focused now on shifting toward high-growth businesses such as AI networking and cloud services. Its fiber network is a key advantage. Lumen plans to layer a digital services platform over it to provide customers the ability to process high volumes of data on demand with minimal delays and unparalleled speed. Lumen is a story for patient investors. It could take a few years for its transformation to play out, but once successful, growth will go from linear to exponental. For many years, Lumen Technologies was preparing for a reality that hadn’t quite arrived. It invested billions to build out a massive fiber optic network. The capital spending cut into profits and weighed on its stock price until it was measured in pennies. The debt it accrued nearly sank it, but Lumen survived while others like WorldCom didn’t. The advent of artificial intelligence, with its voracious demand for computing power, puts Lumen in a sweet spot. The company hopes to leverage its fiber optic network and layer a digital services platform over it. Pitched as a “network-as-a-service,” the highly scalable offering will provide customers flexibility and speed on demand as they link AI data centers to consumers and businesses. A deal Lumen announced Wednesday with AWS Interconnect highlights how its last-mile and metro network infrastructure can make connecting businesses to the cloud much faster and simpler, turning a process that once took weeks and multiple providers into a quick, automated setup completed in minutes. Shares spiked more than 10% in afternoon trading. A new management team and refreshed board of directors that is guiding Lumen as it stabilizes its finances and pivots toward high-growth areas like AI networking, cloud infrastructure, network security and other business services. Lumen sold its consumer business to AT & T earlier this year, which enabled it to pay down debt, cut costs and shift further away from its legacy telecom business. As it continues on this path, Lumen is likely to draw a new investor base, creating more demand for the stock. Investors who are willing to place their faith in future trends — rather than the company’s troubled past — could be rewarded. At its investor day in February, the company outlined a multiyear plan, and said it expects its earnings before interest, taxes depreciation and amortization to begin to grow this year. Revenue growth should return by 2028; margins should steadily expand. Large operating cash flow will support its transition — and potentially prop up its share price as it cuts capital spending. Lumen’s stock has nearly doubled over the past year from distressed levels. Shares are up slightly year to date. From copper to fiber The Monroe, Louisiana-based company traces its roots back to 1930 when William Clarke and Marie Williams purchased the Oak Ridge Telephone Company for $500 when it had just 75 subscribers. Over the subsequent decades, it was renamed to reflect its evolution: Century Telephone Enterprises became CenturyTel and then CenturyLink. At the same time, it grew through mergers and acquisitions, including Embarq (2008), Qwest (2010) and Level 3 (2016). Eventually, it became the second largest U.S. communications provider. In 2020, it rebranded one more time. The new name, Lumen Technologies, reflected its shift from traditional copper wire-based services to fiber. Lumen sold its incumbent local carrier operations to Apollo Funds in 2022 and closed on the $5.75 billion sale of its mass markets fiber-to-the-home business to AT & T in February. The bulk of the proceeds from AT & T went to retire debt , and brought its net debt-to-EBITDA leverage to under 4x. That followed a restructuring of $15 billion in debt that Lumen completed in early 2024, when its stock had fallen to about $1 a share. Total interest expense has been cut by $500 million and the company’s credit ratings have improved . “We did the largest debt restructuring outside of court in the history of corporate America,” CEO Kate Johnson said on a WSJ Leadership Institute podcast in December 2025. “Many said, ‘Just go chapter 11. It would have been easier,’ but I knew that we had deals on the other side of that restructuring that would have fundamentally changed our position because all the hyperscalers needed this fiber.” Restoring value Johnson added that she felt her mission when she came to the company in 2022 was to take assets that had been commoditized and restore their value. About 50% of Lumen’s revenue comes from its legacy businesses: voice, private line and traditional VPN and ethernet — which are offered to businesses — and voice and DSL service over copper wire — which serves mostly rural retail customers. Speaking at the Raymond James Investor conference on March 2, Chief Financial Officer Christopher Stansbury said the revenue from its voice and DSL consumer copper business is declining by “low double digits” every year, but due to valuation multiples in the “low single digits,” the business isn’t worth selling. Instead, the operations throw off “an enormous amount of cash, which is allowing us to invest in our enterprise aspirations,” he said. Lumen’s new, higher growth businesses include $13 billion in private connectivity fabric (PCF) deals to build custom future-ready networks for the AI era for hyperscalers such as Amazon , Google Cloud , Meta and Microsoft . PCF revenue will provide a financial bridge as Lumen builds its digital services business, which had $117 million in revenue in 2025 and is expected to grow to $500 million to $600 million by 2028. Digital services are software tools and features that run on top of Lumen’s network, giving customers an easier way to manage and adjust their connections. By placing computing power close to customers and providing a high-capacity fiber backbone, Lumen can offer its customers something others can’t: super low latency. Latency is valuable because it determines how quickly data can move and be processed directly, enabling real-time AI applications (like voice agents) to feel responsive and function effectively. This is Lumen’s unique competitive moat. No other company can offer both the digital layer Lumen has combined with the vast capacity of its fiber network — or easily build it. The ‘point of explosive growth’ Lumen is a very different company now than it was four years ago, and it will be a very different company four years from now. By 2030, Lumen expects its higher growth strategic businesses to be 70% of revenue, up from about 50% now. Adjusted EBITDA margins are expected to expand to the mid 30% range in 2030 compared with 27.1% in 2025. Digital revenue is expected to grow to $800 million to $900 million by 2030. Lumen’s growth projections out to 2028 are based on linear assumptions, so there is upside if it experiences network effects due to the wide adoption of its platform. “Our belief is if you think about every major disruptive technology that we’ve experienced, they see a period of growth and then they see explosive growth. We would think that this would follow a similar path. We just don’t want to predict where that point of explosive growth [happens],” said CFO Stansbury, speaking at the Morgan Stanley TMT conference on March 3. Leading the change New leadership will facilitate its shift. Jeff Sharritts joined in February from Cisco to become chief revenue officer. Cisco has a subscription-based sales model that emphasizes customer business outcomes, ecosystem co-selling, and sustained recurring revenue instead of one-time transactions. “Think connected ecosystem and think Cisco sales model and you might be on to what we’re trying to accomplish here,” Johnson said, commenting on Sharritts’ arrival. The board has been refreshed, too. Five new directors have been added to the 10-person board since 2022. Two directors will retire and one additional director has been nominated for election at the annual meeting in May. Johnson reaffirmed in early February her confidence in Lumen’s prospects by purchasing about $500,000 in stock, to bring her beneficial ownership to 1.2%. Dan Hagan is another large shareholder with a 5.3% stake. Hagan has been known to invest in out-of-favor deep value stocks with high cash flow yields such as Jackson Financial , AMC Networks , Lincoln National and Goodyear . As the company continues its transformation, its investor base will likely broaden. “After years of focus, Lumen’s debt woes are seemingly behind the company for good with a smoothed maturity profile and gross leverage down to ~3.8x (which also makes the stock investable for a greater breadth of long-only managers),” wrote TD Cowen analyst Gregory Williams in a recent note. Raymond James analyst Frank Louthan sees a return to top line growth, expected in 2028, as “the next factor that will be needed to drive broader investor support.” Valuation Until then, Lumen’s high cash flow makes the stock attractive on a valuation basis compared with peers AT & T and Verizon . Lumen trades at a lower forward price-to-free-cash-flow and price-to-sales ratio on both 2026 and 2027 estimates. This is in part due to Lumen’s unique PCF deals, which Bank of America analyst Michael Fink noted “will remain a strong tailwind to [free cash flow] over the medium term.” At the end of 2025, Lumen had about $982 million of net operating losses that could be used to offset future federal taxable income. Not all investors may be aware of this benefit. Analysts are constructive on Lumen but have yet to buy into the long-term story. There are only two buy, 10 hold and two underperform ratings, with an average price target of $7.54, which was 5% below the stock’s current price at Tuesday’s close, according to LSEG. Since Lumen’s story won’t unfold this year, but rather over the next four or five, investors need to take a long-term view. Those that do may be rewarded if Lumen’s unique digital platform, which sits atop its robust fiber network, becomes the go-to-networking solution for AI deployment.
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