Lumen's 2026 Rally Faces Scrutiny Over Revenue Erosion and Execution Hurdles

What happened

Lumen Technologies has experienced a dramatic stock rally fueled by optimism around its turnaround progress, including aggressive cost reductions and the pending $5.75B AT&T consumer fiber sale. However, this sale will further shrink top-line revenue, delaying stabilization and raising critical questions about the timing of any rebound. DeepValue's analysis reveals that despite over $10B in Private Connectivity Fabric bookings, revenue continues to decline—down 4.2% year-over-year in Q3 2025—with no margin inflection to support the AI-pivot narrative. High leverage at 4.2x EBITDA and concentration risks in PCF customers leave little cushion for execution missteps, such as delays in the AT&T deal or EBITDA falling below guidance. Investors must therefore balance promised debt reduction and free cash flow against persistent revenue erosion and a valuation that already prices in a successful transformation.

Implication

The stock's surge reflects hope in Lumen's AI-era pivot, but fundamental challenges remain unaddressed, with revenue stabilization elusive and the AT&T sale set to exacerbate top-line shrinkage. DeepValue's bear case, with a $6.00 implied value, highlights risks like PCF underperformance and EBITDA misses, which could materialize if 2026 guidance disappoints. While debt reduction may improve the balance sheet, it does not solve core revenue growth issues or mitigate execution risks in a competitive market. Given the valuation already assumes a successful turnaround, the risk-reward skews negative, suggesting trimming exposure above $10.00. Investors should await clearer proof of durable EBITDA growth or a pullback to more attractive entry levels before considering new positions.

Thesis delta

The new article reinforces DeepValue's 'POTENTIAL SELL' thesis by questioning the timing of revenue stabilization post-AT&T sale, aligning with concerns over ongoing declines and high execution risks. No material shift is indicated; instead, it underscores that the rally is premature without evidence of margin improvement or sustainable top-line growth. Investors should maintain a cautious stance until Lumen demonstrates concrete progress in offsetting legacy erosion with higher-margin AI-era revenues.