The Quiet AI Winner That Doesn't Show Up on Any Hot Stock List

AI stock lists usually involve Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT), or perhaps Palantir (NASDAQ: PLTR). Investors rarely think about a beaten-down telecom company that traded at $1 two years ago.

They should give Lumen Technologies (NYSE: LUMN) a chance, though.

As of May 26, Lumen's stock has gained 416% in three years. It has nearly $13 billion in contracts with AI hyperscalers. Amazon (NASDAQ: AMZN) Web Services (AWS) and Anthropic are both building products around Lumen's networks. The stock formerly known as CenturyLink is up 170% in the past year alone.

So why isn't it on anyone's radar?

Because fiber is boring

Lumen doesn't make GPUs. It doesn't train large language models. CEO Kate Johnson doesn't even post cryptic memes on social media. But Lumen has nearly 80 million miles of fiber-optic cable connecting 139 data centers across North America. And each hub connects to the others over high-speed fiber at 400 gigabits per second.

That fiber is increasingly valuable. AI workloads move massive amounts of data between training clusters, inference servers, and multiple cloud providers. All of that data travels over physical infrastructure. Much of it travels over Lumen's infrastructure, especially over long distances.

The company has been quietly signing deals with the biggest names in tech. Recent clients include Microsoft, Anthropic, AWS, and Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Cloud. These aren't speculative partnerships. AWS just made Lumen the first network operator for its new Interconnect service.

The Alkira buyout

In May, Lumen announced a $475 million acquisition of Alkira, a software company specializing in cloud-to-cloud connectivity. This deal targets what the industry calls "East-West" traffic: data moving between data centers and cloud environments rather than from users to the cloud.

The deal should compress years of product development into months and reduce Lumen's capital expenses by $100 million to $200 million over time.

Image source: Getty Images.

The turnaround story

Three years ago, Lumen was a mess. The stock had collapsed to around $1 per share. The company was bleeding cash, weighed down by legacy telecom services nobody wanted anymore. Value investors who'd bought the stock for its generous dividend got crushed when the dividend disappeared.

Then the AI boom gained steam. Suddenly, Lumen's massive fiber network wasn't an expensive liability. It was a strategic asset instead.

The company pivoted hard, signing what it calls "private connectivity fabric" deals with hyperscalers worth nearly $13 billion. It paid down some debt by raising cash from the sale of its residential fiber operations to AT&T (NYSE: T).

Lumen wants to become the infrastructure layer for enterprise AI. One network, any cloud, total control. (CEO Kate Johnson's words, not mine.)

The risks

Lumen's legacy revenue fell 3.2% year over year in Q1. The company is unprofitable, so price-to-earnings ratios don't make sense. Despite the recent paydown, Lumen's debt is still a crushing $17 billion. And the stock has already bounced back a lot, leaving less room for future gains.

But the valuation remains cheap at 0.9 times sales, and hyperscalers keep signing beefy checks. If you're looking for AI exposure that doesn't involve buying Nvidia at 21 times sales, Lumen is worth a look.

Just don't expect to see it on any "Top AI Stocks to Buy Now" listicle anytime soon.

Anders Bylund has positions in Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.