Lumen Technologies Soars 186% Amid AI Buzz and Short Squeeze: Is It Time to Buy or Sell?

Lumen Technologies Inc. (NYSE: LUMN) has experienced an unprecedented rise in its share price, skyrocketing 186% during the month of July, marking its most substantial monthly gain to date. This dramatic surge has been fueled largely by the ongoing fervor surrounding artificial intelligence (AI) initiatives and a concomitant wave of short covering, reversing a trend of significant declines observed over the previous years.

To put this impressive figure into perspective, the stock commenced July at a modest $1.10 but has since skyrocketed to $3.15. This remarkable turnaround is particularly noteworthy given that Lumen's shares had already plummeted by 40% in the first half of 2024, following staggering losses of 65% in 2023 and 58% in 2022. On one particularly strong day—Wednesday—the stock surged 18%, achieving a 15-day winning streak, a record in the company’s history.

Helping propel the stock higher are significant AI-related fiber contracts. Analysts have pointed to a substantial agreement with Microsoft Corp. to enhance network capacity, signed on July 24, and another key deal with Corning on July 30, which entails reserving 10% of Corning’s global fiber resources. This reserve is aimed at supporting Lumen's ambitious plans to develop a new network infrastructure designed to connect AI-equipped data centers. Nicholas Del Deo, an analyst at MoffettNathanson, while maintaining a sell rating on the stock, acknowledged these developments as noteworthy catalysts for growth.

The dynamic nature of short positions has also contributed to Lumen's meteoric rise. After being a lucrative avenue for traders in the early part of the year, positions betting against Lumen turned sour in July, leading to estimated losses of around $220 million for shorts, as remarked by Ihor Dusaniwsky from S3 Partners. As these short plays come under pressure, further short covering is likely, potentially boosting the stock even more. Dusaniwsky suggested that alongside continued buying from long positions, this short squeeze could further elevate LUMN’s price in the weeks to come.

Nevertheless, not all analysts are riding the wave of optimism. Matthew Dolgin, a Morningstar analyst, expressed caution regarding Lumen's leap, stating he remains unconvinced about the company's near-term fortunes ahead of the upcoming earnings report. He noted that while the Corning agreement signals a promising opportunity for growth, he is reserving judgment on how much it will realmente alter the company's trajectory in the near term.