Lumen (LUMN -14.54%) The stock fell in trading on Tuesday. The company’s share price ended the day’s session down 14.5 percent, according to data from S&P Global Market Intelligence.
Lumen fell today following a new short report on the stock published by Kerrisdale Capital. The short seller disclosed that he made an investment betting against the telecommunications company and laid out reasons why he believed the stock’s recent bullish momentum was unjustified.
Kerrisdale thinks Lumens AI opportunities are exaggerated
Despite today’s drop, Lumen stock is still up sharply this year thanks to excitement surrounding the company’s artificial intelligence (AI) capabilities. The company has already secured about $5 billion in deals to provide high-speed fiber optic services to data centers and has said another $7 billion in deals could be in the works. But Kerrisdale Capital doesn’t believe AI contracts will make Lumen’s turnaround dreams a reality.
Kerrisdale titled his recent brief “AI-N’t Gonna Fix This Mess,” and went on to explain why he believed AI-related contracts would not make a comeback for Lumen. The short seller pointed to long-term declines in the telecom company’s core business and a $19 billion debt load as reasons why the stock’s recent gains were unjustified. Despite a major sell-off today, the stock is still up about 195% over the past month.
What’s next for Lumen stock?
Kerrisdale is skeptical that the additional $7 billion in AI sales opportunities will ever come to fruition and doesn’t believe the recent deal wins will do much to reverse declining revenue and margin trends. The short seller believes Lumen stock has virtually no chance of delivering positive returns to shareholders at current levels and urged investors looking for the next potentially explosive AI play to look elsewhere.
While Lumen may have further successes in AI, the company’s prospects on that front remain speculative. The company still has a lot to prove, and it’s far too early to say that AI will pave the way for a sustainable, long-term comeback.
Keith Noonan does not own any stocks mentioned. The Motley Fool does not own any stocks mentioned. The Motley Fool has a disclosure policy.
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