Lumen's $5 billion AI boost to trigger fibre spending

While that is clearly good news for the US network services provider, it also means some hefty spending is in the offing as it moves to expand its fibre footprint.

The additional investment has not dampened investor enthusiasm though; Lumen's shares rocketed on the announcement and in pre-market trading were still well above recent averages at a shade under $4.

Lumen has not fully explained the $5 billion influx. We have no timelines or any real detail about the nature of the business, other than that the telco's recent deal with Microsoft forms part of it. Late last month Lumen and Microsoft announced a strategic partnership that included, amongst other things, a deal that will see the telco expand the software giant's network capacity and capability to help it address the increased demand AI is placing on its data centres.

Lumen's latest announcement is of a very similar ilk. In its own words, those billions of dollars of new business are "driven by major demand for connectivity fuelled by AI." The company added that is in "active discussions" with companies to secure the aforementioned additional $7 billion in sales opportunities.

"Large companies across industry sectors are seeking to secure fibre capacity quickly, as this resource becomes increasingly valuable and potentially limited, due to booming AI needs," it said.

We're very used to AI being bandied about as a major revenue-generator in this industry without any real substance behind the claims. Further, analysts are starting to question whether we are in an AI bubble; indeed, one industry watcher recently put the gap between AI revenues and the investment required to support the technology at around half a trillion dollars.

It is perhaps not surprising then that Lumen has chosen to share AI-related revenue figures, but it is playing its cards close to its chest when it comes to the network spending it will have to undertake to support that revenue stream.

The operator said it will more than double its intercity network miles over the next five years and will provide access to a "significant amount" of installed dark fibre. It has brokered a deal with Corning for the supply of fibre-dense cable to help it accommodate the increased data processing required by AI.

Lumen also said it has set up a new Custom Networks division to manage its portfolio of Private Connectivity Fabric solutions – the modular network fabric it has just agreed to supply to Microsoft to improve data centre connectivity – and to manage additional business from hyperscalers and other large organisations. Through this business unit it will supply dark fibre, custom fibre routes and digital services, all geared towards hooking up data centres and supporting AI workloads.

"The AI economy is changing business operations, and companies are recognizing they need powerful network infrastructure to manage the unprecedented data flows today and the demand in the future," said Lumen CEO Kate Johnson. "Our partners are turning to us because of our AI-ready infrastructure and expansive network. This is just the beginning of a significant opportunity for Lumen, one that will lead to one of the largest expansions of the internet ever."

Like many of its peers, Lumen will have to hope that the network expansion required to underpin AI will be backed up by real revenues, without too much of a time lag. Otherwise, the sentiment currently supporting Lumen's share price could easily turn sour.