Lumen’s stock experienced a significant decline of 14.54% during Tuesday’s trading session. According to S&P Global Market Intelligence, the company’s shares closed the day with a notable drop of 14.5%.
The downturn occurred after Kerrisdale Capital released a new short report targeting Lumen. The short-selling firm disclosed its position against the telecom giant, outlining why it believed the recent bullish trend in Lumen’s stock was unjustified.
Kerrisdale Capital argues that Lumen’s AI prospects are exaggerated
Despite today’s setback, Lumen’s stock has seen substantial gains this year, fueled by enthusiasm over the company’s potential in artificial intelligence (AI). Lumen has already secured approximately $5 billion in contracts to offer high-speed fiber services to data centers and has hinted at potential deals worth an additional $7 billion. However, Kerrisdale Capital remains unconvinced that these AI contracts will lead to a successful turnaround for Lumen.
In its short report, provocatively titled “AI-N’t Gonna Fix This Mess,” Kerrisdale explained its skepticism that AI-related contracts could drive Lumen’s recovery. The firm highlighted ongoing declines in Lumen’s core telecom business and a burdensome $19 billion debt as reasons for considering recent stock gains unwarranted. Despite today’s heavy sell-off, the stock has surged roughly 195% over the past month.
What lies ahead for Lumen’s stock?
Kerrisdale Capital doubts that the additional $7 billion in AI sales opportunities will materialize and believes that recent contract achievements will do little to counteract declining sales and margins. The short seller contends that Lumen’s stock has little chance of providing positive returns to shareholders at its current valuation and advised investors searching for the next promising AI opportunity to explore other options.
While Lumen might still secure more AI-related contracts, the company’s prospects in this arena remain uncertain. There is a significant amount of work ahead, and it is premature to declare AI as the key to a sustainable, long-term recovery for Lumen.
