Lumen’s AI-Network Turnaround Advances, but the Stock Has Run Ahead of the Fundamentals

What happened

Lumen’s latest filings and Q3 2025 update confirm that its multi‑year pivot toward Private Connectivity Fabric, Network‑as‑a‑Service, and AI‑centric connectivity is gaining traction, with revenue, EBITDA, and free cash flow all running ahead of internal expectations. The new article builds on this by emphasizing strong digital platform growth, expanding NaaS partnerships, and a newly articulated target of roughly $1 billion in incremental revenue by 2028 tied to AI‑ecosystem opportunities. Equity markets have already priced in much of this progress, with the stock up more than 80%, even though the company still carries heavy leverage (net debt/EBITDA ~4.2x), negative interest coverage, and meaningful refinancing and execution risk around the AT&T consumer fiber sale. While the article argues the shares remain undervalued on P/S and P/FCF, the DeepValue work shows a far less forgiving picture when you include the balance sheet, with EV/EBITDA near 24x and a DCF base case below the current price. In short, operations are clearly improving and the strategic narrative is cohering, but the equity now assumes a cleaner, faster turnaround than is actually de‑risked in the capital structure or the still‑early NaaS/AI revenue ramp.

Implication

For investors, the key shift is that the risk in the business is gradually coming down while the risk in the stock has gone up after an 80%+ move. The improving PCF/NaaS and AI‑connectivity story, plus a quantified $1 billion revenue ambition by 2028, supports staying invested if you already own the name, but only with close monitoring of leverage, interest coverage, and the timing and use of proceeds from the AT&T fiber sale. New buyers should resist the temptation to rely on simple P/S or P/FCF screens, which largely ignore balance‑sheet fragility, elevated EV/EBITDA, and the fact that much of the upside from “better‑than‑expected” execution is now in the price. Position sizing should reflect that this remains a highly levered capital‑structure bet: any stumble on refinancing, regulatory approvals, or NaaS monetization could erase a large part of the recent gains. Conversely, if Lumen delivers on debt reduction, achieves its cost‑out targets, and shows tangible progress toward that $1 billion incremental revenue goal without further multiple expansion, the risk/reward could improve enough to justify upgrading the stock from a hold to a buy, but that is not today’s setup.

Thesis delta

The article’s emphasis on accelerating digital platform and NaaS growth, plus management’s explicit $1 billion incremental revenue target by 2028, slightly increases confidence that Lumen’s strategic pivot is real and commercially meaningful rather than purely narrative. However, the 80%+ share price rally and still‑stressed balance sheet mean the valuation case is weaker, not stronger, than in the prior DeepValue work, with much of the visible operational upside now capitalized. Net‑net, the rating remains HOLD, but the tilt shifts to: better business trajectory, worse entry price, leaving a narrower and more execution‑sensitive upside path for equity investors.