AI Worries Heighten As Kerrisdale Plays "Hindenburg" With Smoke and Mirror Lumen Tech Allegations...

Is it just me or is the key to winning every short selling trade come from issuing a blistering report on the company you’re shorting? (Asking for a friend, as I crack my knuckles with excitement on a new side hustle opportunity) 

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Maybe, maybe not, but clearly that’s the trend this week as Kerrisdale Capital stole a page right out of Hindenburg Research’s playbook by nailing Lumen Technologies to the cross due to their loud and proud reinvention of itself with flashy “AI buzzwords”. Think, Dotcom bubble where every company coming out with “.com” exploded to the moon. 

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However, while Lumen’s stock has been riding high on a stock surge that has seen nearly 200% in the last month alone (mainly from it’s AI affiliation), Kerrisdale’s latest report—titled with the not-so-subtle jab, “AI-N’t Gonna Fix This Mess”—took that momentum and slammed it into reverse. 

(Source: Investing.com) 

In short, the report doesn’t just question Lumen’s AI ambitions; it practically eviscerates them, accusing the company of using artificial intelligence as a smokescreen to distract from its underlying issues. Shots fired…

As expected, Kerrisdale putting Lumen on blast had an immediate and brutal impact as Lumen's stock plummeted 14.5% on the day the report was released, signaling that investors are losing faith in the AI narrative that Lumen has been aggressively pushing.

(Source: Yahoo Finance) 

Additionally, the fallout has left analysts in a scramble, reassessing their positions and issuing a range of new price targets that reflect the growing uncertainty surrounding the company’s future. Some, like Goldman Sachs, have taken a cautiously optimistic stance, upgrading Lumen to “Neutral,” likely thinking, “Well, it’s not dead yet.”. But on the other hand, others like Wells Fargo for instance, just downgraded its price target to $4, indicating a -29.95% downside. So clearly a flood of uncertainty on Wall Street’s thoughts and outlooks for Lumen going forward. 

(Source: The Fly) 

Which is understandable, especially when a bearish short seller comes out screaming fraudulent, smoke and mirror behaviors on a stock that has been at the top of every degenerate traders watchlist this year. 

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But with Lumen flashing its peacock feathers, loudly proclaiming that its network is a critical component of the AI revolution - while repeatedly emphasizing that “AI requires data centers, and data centers need connectivity,” positioning itself as a key player in this emerging field; Kerrisdale “AI-N’t” buying it. 

The short-seller’s report argues that Lumen’s AI rhetoric is more about distracting from its deteriorating financial fundamentals than it is about genuine innovation. Whereas, according to Kerrisdale, Lumen’s attempts to pivot towards AI and cloud-based services are superficial at best—akin to putting a fresh coat of paint on a house with a crumbling foundation. 

(Source: Giphy) 

But with that said, these aren’t just empty allegations either. Kerrisdale’s skepticism is supported by some concerning numbers layered in Lumen’s core business revenue that saw an 8.6% decline last quarter, the steepest drop in the company’s history. 

(Source: Yahoo Finance) 

Another key note is how the company has paced with its latest earnings showing. Sure, the company’s year over year growth is showing some phenomenal gains as Net income, Diluted EPS, and Net Profit Margin have all catapulted +99% year-over-year…

But, but, but… over the past two quarters, Lumens EPS have completely air balled analysts expectations by -228.66% and -194.12%, respectively. Translation: The gains Lumen has seen are officially overshadowed by the broader issues plaguing the company—issues that again, according to Kerrisdale, no amount of AI hype can easily fix.

(Source: Zacks Equity Research) 

Plus, let’s not forget the massive elephant in the room with Lumen’s staggering $19 billion debt load that continues to loom larger than life over the company’s balance sheet. Kerrisdale’s report doesn’t hold back in its assessment, calling Lumen’s $5 billion Private Connectivity Fabric deal a “desperate bid” to raise cash.

According to Kerrisdale, the deal will generate just $800 million over the next few years, with only $21 million in annual recurring profit—a far cry from the kind of numbers that would inspire confidence in Lumen’s long-term viability. Aka, Lumen may need to take a page out of Super Micro’s playbook and delay their 10-K filing to check the math that ain’t mathin’ on that deal… 

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So in light of this, investors are now left in a tough spot obviously. With price targets scattered across the board like confetti—from a hopeful $7 to a rock-bottom $1—it’s clear that the market doesn’t quite know what to make of Lumen’s future prospects. The big question now is whether Lumen can turn its AI narrative into something more than just a talking point. 

Which is like a "duh” move. The whole narrative this year has been whether or not investors and clients are seeing massive ROI’s on the AI momentum, especially when guys like Sequoia Capital keep screaming “Where is the AI Revenue Going” from the rooftops. 

(Source: Axios) 

Sure, AI is the pinnacle of the world's tech landscape right now, but where is the proof that backs up the talk. It’s one thing to talk the talk, but it’s another to walk it ,and right now Lumen, in the face of Kerrisdales body slam, needs to deliver concrete results and secure meaningful partnerships if it wants to regain investor confidence. But again, that’s a tall order, especially in a market that’s growing increasingly skeptical of grandiose AI claims.

So with that said, what’s the takeaway for investors here? 

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Well, it’s no secret that Lumen’s future now hinges on its ability to execute its AI strategy and prove that its network truly is as indispensable to the AI revolution as it claims. The potential for a turnaround exists, but it will require more than just bold claims about AI. Investors will need to see concrete results—real partnerships, real revenue growth, and a clear path to sustainable profitability—before confidence in the company can be fully restored.

Which is why Kerrisdale’s report is not only a wake-up call for anyone who thought Lumen’s AI-driven resurgence was a sure thing - but it’s a friggin “Oh sh*t” moment for every other tech company that’s been using AI buzzwords like a pimp uses a cane. 

(Source: Giphy) 

In the end, for you AI enthusiasts who are blinded by the light and revved up like a deuce, ready for another AI runner in the night - don’t fret, Lumen may still have a heavy role to play in the AI world. 

However, it’s now clear that the company has a lot to prove before it can convince the market that its AI ambitions are more than just hot air. So with that, you know the drill, keep an eye on the stock going forward, but don’t be dumb. Because if you didn’t already know, when you play stupid games, you win stupid prizes. You know, kind of like fabricating you’re a frontrunner of the AI trend, when you don’t have the numbers to back it up… *sigh*. 

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In the meantime, stay safe and stay frosty friends! Until next time…