Why Lumen Technologies Plunged Today

Core Viewpoint - Lumen Technologies is facing significant skepticism regarding its ability to manage its substantial debt load despite recent AI-related deals, leading to a notable decline in its stock price [1][2][3]. Financial Performance - Lumen's Q2 revenue decreased by 10.7%, with 36% of this decline attributed to divestitures, indicating a high-single-digit decline in its core business [5][6]. - The company reported a free cash flow loss of $156 million in the quarter, with management projecting $1.1 billion in positive free cash flow for the year, of which $700 million is expected from a one-time tax refund [6][7]. Debt Concerns - Lumen has a high debt-to-EBITDA ratio of 4.3 and approximately $18.9 billion in debt and pension liabilities, raising concerns about its financial stability [3][6]. - Hedgeye, a stock-recommendation firm, has advised shorting Lumen due to these debt concerns and the company's declining financial metrics [3][4]. AI-Related Deals - Lumen announced $5 billion in new AI-related deals and an additional $7 billion in AI "opportunities," but skeptics question the significance of these deals in addressing the company's debt issues [4][8]. - The new AI-related Private Connectivity Fabric deal is expected to generate about $1.25 billion in revenue per year over three to four years, but profitability remains uncertain [7][8]. Market Sentiment - The stock has seen a significant drop, down 9.1% on a recent trading day, reflecting broader market fears and skepticism from short-sellers [1][2]. - Investors are advised to approach Lumen with caution, as the turnaround prospects appear uncertain despite the potential for increased network spending on AI [7][8].