Intraday surge of 93%, fiber optic company Lumen becomes the new darling of AI? | AI Dehydration

Author: Zhang Yifan

Editor: Shen Siqi

Source: Hard AI

Lumen Technologies, a fiber optic network company that was once undervalued by the market, has recently attracted attention due to the boom in its AI business. With the increasing demand for massive data in AI model training, high-speed and stable fiber optic networks have become increasingly important.

Recently, Lumen announced that the company has secured $5 billion in new business orders from major enterprises, leveraging its strong network infrastructure.

Following this announcement, the company's stock price experienced drastic fluctuations. While the S&P 500 index only rose by 1.04% during the same period, Lumen surged by 93.05%, drawing widespread attention from investors.

1. Why is AI so dependent on fiber optic networks?

AI model training and inference typically generate a large amount of data, which is often distributed across servers worldwide and requires high-speed, stable networks for transmission. Fiber optic networks, with their ultra-high bandwidth and low latency, have become the best choice for connecting these servers. In addition, AI applications have spurred the demand for edge computing, which involves performing computations near the data source to reduce data transmission latency. Fiber optic networks provide a reliable underlying infrastructure for edge computing.

2. Reasons for the stock price increase

In addition to the new business orders, the significant increase in the stock price is also attributed to "short squeeze" at the trading level.

Bank of America pointed out that previously, the company was heavily shorted as it was expected to have no growth prospects, making it one of the most shorted stocks at 14%, second only to SATS (18%). The sudden sharp rise in the stock price forced short sellers to buy the company's stock to hedge their losses. This "short squeeze" further led to a surge in Lumen's stock price.

3. Future development

Looking ahead, Lumen revealed that due to the vigorous growth in demand for artificial intelligence, fiber optic networks have become increasingly important and scarce in AI data processing. The company is actively negotiating with customers, and in addition to the current $5 billion new business orders, there is a potential for an additional $7 billion in artificial intelligence sales opportunities in the future.

In July, Lumen also reached a deal with Microsoft (MSFT), where Microsoft will utilize LUMN's transmission services to connect data centers, and Lumen will purchase Microsoft's cloud tools to help automate business operations and save costs.

Furthermore, to support the construction of AI data centers, Lumen has reached an agreement with fiber optic manufacturer Corning (GLW) to reserve 10% of global fiber optic component capacity for the next two years. This measure will help Lumen build new networks over the next two years to meet AI demands.

However, Bank of America points out that Lumen is currently facing significant capital expenditure pressure, and its cash flow is declining. When making investment decisions, these risk factors should be fully considered