Lumen Surges 36% in 6 Months: Should Investors Still Buy the Stock?

Lumen Technologies, Inc. LUMN has registered a dramatic turnaround after years of revenue declines, a distressed balance sheet and investor skepticism. Shares have surged 35.9% over the past six months, outpacing the S&P 500 composite and the Diversified Communications Services’ growth of 6.1% and 5.1%, respectively.

Price Performance

Lumen also outperformed some of its peers like Verizon Communications VZ, AT&T T and Cogent Communications CCOI. Verizon and AT&T are up 18% and 0.1%, respectively while Cogent Communications has registered a decline of 37.4%. Significant strategic business transformation has been the driving force behind LUMN stock’s stellar run.

Such a sharp run-up is bound to raise the question of whether the rally is sustainable or if further gains are already priced in.

Let’s delve deeper to determine whether Lumen remains a compelling buy even after its recent surge.

Balance Sheet Restructuring

After years of battling a massive debt load, Lumen is now heavily focused on de-leveraging. The recent sale of Mass Markets' fiber-to-the-home business (including Quantum Fiber, across 11 states) to AT&T for $5.75 billion in cash marks a defining pivot.  

Upon completion of the transaction, management used cash on hand and $4.8 billion in net proceeds to fully retire super-priority bonds, thereby lowering annual cash interest expense by an additional $300 million. Total debt now reduced to less than $13 billion, down more than $5 billion since January 2025. Over the past 12 months, Lumen executed seven refinancing transactions totaling more than $11 billion.

Annual interest expense has been reduced by nearly $500 million in the past 12 months, unlocking massive cash flow gains. It also previously eliminated second-lien debt.

The sale of the fiber-to-the-home business reduces annual capex by more than $1 billion, allowing Lumen to focus investment on enterprise and AI infrastructure.

AI-tied Demand Driving PCF Deals

Lumen is repositioning itself as “the trusted network for AI.” Management’s strategy is centered on three pillars: building the AI backbone, cloudifying the network, and expanding a connected ecosystem of partners.

The explosive growth of AI workloads is driving demand for low-latency, high-bandwidth fiber connectivity between data centers, cloud regions and enterprise clients, resulting in increasing demand for Lumen's Private Connectivity Fabric (PCF) and network-as-a-service (NaaS) solutions. Driven by significant AI-fueled connectivity demand, Lumen has secured a total of $13 billion in PCF deals at the end of the fourth quarter of 2025.

Lumen has inked deals with various tech giants like Microsoft, Amazon, Google Cloud and Meta Platforms to provide the network capabilities for AI innovation. The company recognized revenues of $41 million and $116 million for the fourth quarter and full-year 2025, respectively, associated with the $13 billion in PCF deals.

These “prefunded deals” are helping Lumen to expand capacity and provide upfront capital for its business plan. It has already implemented 17 million intercity fiber miles in 2025 and expects network expansion to reach 58 million fiber miles by 2031. Lumen is investing in building 400-gig rapid route waves across 49 new routes by 2026, expanding metro connectivity and data center interconnect capacity. Partnership with Corning ensures access to next-generation fiber technology.

Beyond fiber, Lumen is building its NaaS business, with its customer base now exceeding 2000. Lumen highlighted that active NaaS customers were up 29% sequentially in the fourth quarter. Fabric ports deployed increased 31%, and the number of services sold surged 26% sequentially. Management remains upbeat about Internet on Demand, or IoD Offnet, and expects this solution to boost market reach with more than 900 off-net ports sold already. The company projects the current digital total addressable market of $23 billion in 2026 to increase to nearly $32 billion by 2030.

Lumen remains upbeat about its connected ecosystem strategy (with over 16 ecosystem partners like Palantir, Commvault and QTS), which is producing tangible results with more than 180 potential sales opportunities as highlighted on the fourth quarter earnings call.   

Given these developments, Lumen has been witnessing strong estimate revision activity.

As the company shifts toward newer growth products like fiber and cloud-based offerings, the secular headwinds in the legacy business will continue to prove a strain on the top-line expansion, at least in the near term. Ongoing declines across Nurture and Harvest categories are a concern. More importantly, management does not expect a return to business revenue growth until 2028, and total revenue growth only in 2029, implying at least two to three more years of structural decline.

At its Investor Day, LUMN noted digital capabilities, including NaaS, Edge Solutions, Security and the Connected Ecosystem, to deliver between $500 million and $600 million of incremental revenues exiting 2028, and $800-$900 million by 2030. PCF business will yield $400-$500 million of recurring revenues exiting 2028 and $550-$650 million by 2030.

LUMN’s Cost-Cutting Efforts

Lumen exceeded its 2025 cost-reduction target, achieving more than $400 million in run-rate savings. It now targets $700 million exiting 2026 and $1 billion by year-end 2027.

This cost optimization, combined with improving revenue mix, underpins guidance for adjusted EBITDA of $3.1-$3.3 billion in 2026, with management expecting EBITDA to inflect to growth this year. At its Investor Day held last month, LUMN added that it was working on boosting adjusted EBITDA margins to approximately the mid 30% range by 2030 from 27.1% reported in 2025.

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 0.66, much below the industry’s ratio of 1.78.

AT&T, Verizon and Cogent Communications trade at multiples of 1.58, 1.5 and 1.15, respectively.

Here’s Why LUMN Is a BUY

LUMN’s sharp 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.

The company is aligning itself with the massive growth of AI, cloud computing and digital telecom services. Despite the competition in the AI space, increasing PCF demand and deals with tech giants are creating a strong foundation for 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.

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

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