LUMN Q3 Deep Dive: Digital Platform Growth and AI Infrastructure Offset Legacy Declines

Telecommunications infrastructure company Lumen Technologies (NYSE:LUMN) announced better-than-expected revenue in Q3 CY2025, but sales fell by 4.2% year on year to $3.09 billion. Its non-GAAP loss of $0.20 per share was 25% above analysts’ consensus estimates.

Is now the time to buy LUMN? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Lumen’s third quarter results demonstrated continued progress in its digital transformation, with revenue and adjusted EBITDA both surpassing Wall Street expectations. Management highlighted the expansion of its private connectivity fabric and network-as-a-service (NaaS) platforms as core drivers, with CEO Kate Johnson emphasizing, “We signed an additional $1-plus billion in private connectivity fabric deals since our last update.” Despite ongoing declines in legacy telecom revenue, the company’s newer digital offerings and cost management initiatives helped offset these pressures. The market response was muted, reflecting a wait-and-see approach as Lumen pivots toward a more digital and AI-driven business model.

Looking forward, Lumen’s guidance reflects both the challenges of legacy revenue decline and optimism around new growth engines. Management’s strategy focuses on expanding its AI-ready networking fabric, scaling NaaS adoption, and deepening partnerships with technology firms like Palantir and Microsoft. Johnson explained, “Our early read on growth from all of our digital capabilities... is somewhere between $500 million and $600 million of incremental revenue run rate exiting 2028.” While transformation costs and capital investments will impact near-term margins, Lumen expects these efforts to lay the foundation for revenue growth and improved cash flow by 2026.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to accelerating digital adoption, major progress on operational efficiency, and a shift in revenue mix toward growth products.

• Digital revenue momentum: Lumen’s NaaS and connectivity fabric platforms saw rapid customer adoption, with the number of active NaaS customers growing 32% since last quarter and the number of deployed fabric ports rising by 30%.
• AI infrastructure investments: The company continued building out its AI-ready network backbone, completing over 3,200 miles of network enhancements—exceeding its annual target and supporting increased demand from hyperscalers and enterprise clients for high-bandwidth, low-latency connections.
• Operational cost reductions: Management reported over $250 million in run-rate cost savings through process automation and the first phase implementation of a new enterprise resource planning (ERP) system, targeting $350 million in total for the year.
• Balance sheet improvement: CFO Chris Stansbury detailed multiple refinancing transactions, reducing annual interest expense by approximately $235 million year-to-date and positioning the company to further deleverage after the expected fiber-to-the-home sale in early 2026.
• Growing revenue base mix: Lumen’s “Grow” product segment now constitutes 50% of North American enterprise revenue, up from 35.5% three years ago, marking a significant shift away from legacy telecom services.

Drivers of Future Performance

Lumen’s outlook is shaped by continued digital platform expansion, cost discipline, and the ramping of AI-era network solutions, with legacy declines and transformation costs as ongoing headwinds.

• AI-driven network demand: Management expects AI workloads and cloud services to drive substantial increases in data center interconnect and network upgrades, fueling demand for Lumen’s programmable, high-capacity offerings.
• Digital product scaling: The rollout of new products—like IoD off-net and Project Berkeley—aims to multiply addressable markets and accelerate enterprise adoption of NaaS, creating a recurring revenue flywheel as more services are layered onto digital ports.
• Transformation and cost structure: Ongoing modernization and system simplification are expected to yield further operational efficiencies and margin stabilization, but near-term EBITDA performance will be pressured by transformation costs and normalization of certain revenue streams.

Catalysts in Upcoming Quarters

In the coming quarters, our team will be monitoring (1) the pace of NaaS and digital port adoption as new products like IoD off-net and Project Berkeley scale, (2) progress on cost reduction and balance sheet deleveraging, especially following the AT&T fiber-to-the-home transaction, and (3) the ability to offset legacy service declines with growth in AI-driven and ecosystem partnership revenues. The onboarding of additional partners and expansion of the connected ecosystem will also be key indicators.

Lumen currently trades at $9.99, down from $10.34 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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