Is Lumen Technologies Stock a Mispriced Turnaround Play in the AI-Driven Telecom Sector?

Lumen Technologies (LUMN) has long been a cautionary tale for value investors, burdened by a legacy of debt and declining traditional telecom revenue. However, recent developments suggest the company may be on the cusp of a meaningful turnaround, driven by aggressive debt restructuring and a strategic pivot toward AI-driven infrastructure. For investors seeking undervalued opportunities in the telecom sector, Lumen's progress-and its potential mispricing-warrants closer scrutiny.

Debt Restructuring: A Foundation for Stability

Lumen's path to recovery has centered on reducing its massive debt load, which peaked at $37 billion in 2017. By the third quarter of 2025, the company had slashed its total debt to $17.5 billion, a reduction of nearly 54%. A 2.4 billion debt refinancing in 2025 alone is projected to save $135 million annually in interest expenses, while a pending $5.75 billion sale of its home-fiber business to AT&T-expected to close in early 2026-will further strengthen its balance sheet. These steps have already improved liquidity, with free cash flow reaching $1.661 billion in Q3 2025, up from $1.198 billion in the same period in 2024.

The debt-to-EBITDA ratio, a critical metric for value investors, stands at 5.33 as of 2025, down from a peak of over 10x in 2017. While this remains elevated, the trajectory is encouraging. Analysts project that the pending AT&T deal and ongoing cost-cutting-350 million in annualized savings by year-end 2025-will further reduce leverage, potentially unlocking value for shareholders.

AI-Driven Transformation: A New Revenue Engine

Lumen's pivot to AI-era infrastructure is equally compelling. The company has partnered with Palantir Technologies on a $200 million multi-year initiative to accelerate enterprise AI adoption, while expanding its Internet On-Demand platform to over 10 million business locations. These moves align with a broader strategy to transition from traditional telecom to a digital platform and Network-as-a-Service model.

The company's fiber network, a critical enabler of AI infrastructure, is projected to reach 16.6 million intercity fiber miles by 2025 and 47 million by 2028. This scale positions Lumen to capitalize on the surging demand for high-speed, low-latency connectivity required by AI applications. Its Private Connectivity Fabric (PCF) offering, tailored for data-intensive workloads, further underscores its commitment to enterprise solutions.

Valuation Metrics: A Tale of Two Narratives

Lumen's valuation remains contentious. On one hand, a widely followed analysis estimates its fair value at $5.20, significantly below its current share price. On the other, a DCF model from Simply Wall St suggests a fair value of $14.46, implying the stock is undervalued. This divergence reflects the market's uncertainty about Lumen's ability to sustain its turnaround.

Key metrics tell a mixed story. The company's EV/EBITDA ratio of 8.07 appears attractive compared to peers, while its price-to-sales ratio of 0.63 suggests it trades at a discount to revenue. However, its negative book value per share (-$1.14) and lack of a P/E ratio (due to ongoing losses) highlight lingering risks. For value investors, the critical question is whether Lumen's AI-driven growth can justify its current valuation.

Risks and Realities
Despite progress, challenges persist. Legacy business revenue continues to decline, and cost management remains a priority. The company's debt restructuring, while successful, still leaves it with a high debt-to-EBITDA ratio, exposing it to interest rate volatility. Additionally, the AI telecom sector is highly competitive, with rivals like AT&T and Verizon also investing heavily in AI infrastructure.

Conclusion: A Calculated Bet

Lumen Technologies' debt reduction and AI-focused strategy have laid a foundation for long-term value creation. Its free cash flow growth, combined with a pending asset sale and cost savings, suggests the company is regaining operational control. However, the stock's valuation remains a double-edged sword: while metrics like EV/EBITDA and P/S appear attractive, the absence of a P/E ratio and conflicting fair value estimates underscore uncertainty.

For value investors, Lumen represents a high-conviction opportunity-a mispriced turnaround play if the company can execute its AI-driven transformation and sustain its debt reduction. Yet, patience and a margin of safety are essential. The path to profitability is far from guaranteed, but for those willing to bet on Lumen's pivot, the rewards could be substantial.