Lumen(LUMN) The Motley Fool·2025-03-03 23:00Core Viewpoint - Applied Digital and Lumen Technologies represent two distinct investment opportunities in the growing AI market, with Applied Digital focusing on data centers and Lumen on telecom infrastructure upgrades for AI applications [1][2]. Group 1: Applied Digital - Applied Digital has shifted its focus from blockchain and Bitcoin mining to high-performance computing (HPC) and AI since late 2022, launching a subsidiary, Sai Computing, to cater specifically to AI cloud service providers [3]. - In fiscal 2023, Applied Digital's revenue increased by 548% to 166 million in fiscal 2024, with analysts projecting a further 55% increase to 1.75 billion, translating to 7 times this year's sales, and insiders have purchased nearly twice as many shares as they sold in the past year, indicating potential upside [5]. - The company has a manageable debt-to-equity ratio of 1.1, but its share count has increased by 136% over the past two years due to secondary offerings and stock-based compensation [6]. Group 2: Lumen Technologies - Lumen has focused on expanding its wireline networks and fiber infrastructure rather than entering the wireless market, aiming for steady returns from a slower-growth segment [7]. - Despite efforts to grow its smaller business, Lumen's revenue has declined for six consecutive years, and it reported a high debt-to-equity ratio of 71.2 at the end of 2024 [8]. - Lumen's stock price fell below 8.5 billion by the end of 2024 [9]. - Analysts expect Lumen's revenue to decline by 6% to 20.4 billion, it may be undervalued at less than 2 times this year's sales, especially if AI contracts revitalize its business [10]. - Lumen's number of outstanding shares has remained stable over the past two years, and insiders have purchased five times as many shares as they sold in the last year [10]. Group 3: Comparative Analysis - Applied Digital is considered a riskier investment but is growing significantly faster and has more direct exposure to the AI market compared to Lumen [12]. - Lumen's AI contracts could mitigate its existing challenges, but it needs to increase spending to meet the demands of large clients, and its high debt levels may restrict its growth potential if interest rates remain high [12].