2 hours ago 1

Lumen Technologies, Inc. (LUMN): Among Goldman Sachs’ Unsexy AI Stock Picks

We recently compiled a list of the 10 Unsexy AI Stocks According to Goldman Sachs. In this article, we are going to take a look at where Lumen Technologies, Inc. (NYSE:LUMN) stands against the other unsexy AI stocks.

Investment bank Goldman Sachs recently organized its Communacopia + Technology Conference, an annual event that brings together innovators and business leaders from the technology and communications industries to discuss the latest developments related to their fields and pursue mega deals. Several prominent companies working in the artificial intelligence (AI) space were headliners this year, but none grabbed more attention than Simon Mays-Smith, a senior executive at Autodesk, an engineering firm, who urged investors to pay closer attention to the unsexy AI stuff that companies were pursuing.

Read more about these developments by accessing 33 Most Important AI Companies You Should Pay Attention To and 20 Industrial Stocks Already Riding the AI Wave.

The remarks made by Mays-Smith echo to a certain extent the comments made by Eric Sheridan, a senior research analyst covering the US Internet sector within the research division of the bank, who said on the sidelines of the event that he believed that AI had the potential to be a significant driver of the financial results of tech companies, even though much more was unknown than known right now about the emerging technology. Sheridan noted that historically, tech product cycles underwent periods of capturing imagination, a build cycle, and disillusionment on the time between the build cycle and applications that have utility.

Sheridan highlighted that if you listened to the companies broadly at the conference, the market was moving deeper into the build cycle, which was putting an upward pressure on capital expenditures. He also underlined that for AI, companies needed a lot of capital, a lot of engineering talent, and a lot of data. These created enormous barriers to entry in the AI space. Thus, per the analyst, even some of the most interesting private companies had found their way to partnerships with some of the incumbents just because of the sheer scale of capital, the sheer need for engineering talent, and then the data required to scale these models.

Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and AI News You Should Not Have Missed.

Our Methodology

We selected AI stocks by combing through the proceedings of the latest Communacopia and Technology Conference. We've also added the hedge fund sentiment for these stocks, as of Q2 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Close-up of a technician's hands adjusting a communication router.

Lumen Technologies, Inc. (NYSE:LUMN)

Number of Hedge Fund Holders: 18

Lumen Technologies, Inc. (NYSE:LUMN) is a technology and communications firm. Chris Stansbury, the CFO of the company, spoke at the Communacopia and Technology Conference earlier this month, saying that his company viewed the AI TAM opportunity as 3 phases. Per Stansbury, the market was in the first phase right now where the race was for companies that were developing large learning algorithms. He stressed that these firms needed to train those algorithms and there was a race to see who could build the best algorithms the fastest, primarily because in the next phase, larger enterprises would start to use those to run their businesses. He noted that a lot of the connectivity being acquired was really to support the data center builds that were there to support that training.

The senior executive at Lumen Technologies, Inc. (NYSE:LUMN) further underlined that AI needed data, data needed data centers, and data centers needed connectivity, pointing out that this was where his firm excelled. He revealed there was a $7 billion revenue opportunity for his company in the networking domain of data centers, with clients like hyperscalers, large tech firms, and cloud providers.

Overall LUMN ranks 10th on our list of unsexy AI stocks according to Goldman Sachs. While we acknowledge the potential of LUMN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LUMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.