Lumen(NYSE: LUMN) stock sank in Tuesday's trading. The company's share price ended the daily session down 14.5%, 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 revealed it had made an investment betting against the telecom company and laid out reasons it believed recent bullish momentum for the stock was unwarranted.
Kerrisdale thinks Lumen's AI opportunities are overblown
Even with today's pullback, Lumen stock is still up big this year thanks to excitement surrounding the company's artificial intelligence (AI) opportunities. The company has already secured roughly $5 billion in contracts to provide high-speed fiber services to data centers, and it has said it could have $7 billion in additional deals in the works. But Kerrisdale Capital doesn't think AI contracts will make Lumen's turnaround dreams a reality.
Titling its recently published short report "AI-N't Gonna Fix This Mess," Kerrisdale went on to break down why it believed that AI-related contracts would be unable to power a comeback for Lumen. The short seller pointed to secular declines for the telecom's core business and a $19 billion debt load as reasons why recent gains for the stock were unwarranted. The stock is still up roughly 195% over the last month despite a big sell-off today.
What comes next for Lumen stock?
Kerrisdale is skeptical about whether the $7 billion in additional AI sales opportunities will ever wind up coming to fruition, and it doesn't think recent contract wins will do much to reverse declining sales and margin trends. The short seller believes that Lumen stock has virtually no chance of delivering positive returns for shareholders at current levels, and it urged investors seeking the next potentially explosive AI play to look elsewhere.
While Lumen may still be able to score more AI-related wins, the company's outlook on that front remains speculative. The business still has a lot of proving to do, and it's far too early to say that AI will pave the way for a sustainable, long-term comeback.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
