Author of this article: Zhang Yifan

Editor: Shen Siqi

The weather is good today The weather is good today.

Lumen Technologies, a once undervalued fiber optic network company, has recently attracted attention due to the explosion of its AI business. As the demand for massive data to train AI models continues to grow, high-speed and stable fiber optic networks have become increasingly important.

Lumen recently announced $5 billion in new business orders from major corporations, thanks to its powerful network infrastructure.

After the news was released, the company's stock price experienced violent fluctuations. While the S&P 500 index rose only 1.04% during the same period, Lumen's stock price skyrocketed 93.05%, attracting widespread attention from investors.

1. Why does AI rely so much on fiber optic networks?

AI model training and inference usually produce a large amount of data, which is typically distributed on servers around the world and requires high-speed and stable networks for transmission. With its ultra-high bandwidth and low latency, fiber optic networks are the best choice for connecting these servers. In addition, AI applications have also given rise to the demand for edge computing, which is computing performed near the data source to reduce data transfer latency. Fiber optic networks provide a reliable underlying infrastructure for edge computing.

2. Reasons for the rise in stock prices

The reasons for the sharp rise in the stock price, in addition to the new business orders, also include the 'short squeeze' at the trading level.

Bank of America pointed out that previously, because the company was expected to have no growth prospects, it became a highly shorted stock, with a short ratio of 14%, second only to SATS (18%). This sudden and sharp rise in stock prices forced short sellers to buy the company's stock to hedge their losses. This 'short squeeze' further drove up the price of Lumen's stock.

3. Future development

Regarding the future, Lumen revealed that due to the booming demand for AI, fiber optic networks have become increasingly important and scarce in the AI data processing process. The company is actively negotiating with customers and, in addition to the current $5 billion in new business orders, is expected to gain another $7 billion in AI sales opportunities in the future.

In addition, in July, Lumen reached a trading agreement with Microsoft (MSFT), which will use LUMN's transport services to connect data centers, while Lumen will purchase Microsoft's cloud tools to help automate business and save costs.

At the same time, to support the construction of AI data centers, Lumen has also reached an agreement with fiber optic manufacturer Corning (GLW), reserving 10% of the world's fiber optic component production capacity for the next two years. This measure will help Lumen build a new network in the next two years to meet AI demand.

However, Bank of America pointed out that Lumen currently faces significant capital expenditure pressure and declining cash flow. When making investment decisions, these risk factors should be fully considered.