What happened
Shares of Lumen Technologies (LUMN) are soaring in Tuesday's daily trading session. The telecommunications company's stock was up 17.5% as of 3:15 p.m. ET, according to data from S&P Global Market Intelligence.
Lumen published a press release yesterday announcing that it had entered into a new partnership with Microsoft and Alphabet's Google division on a new network interconnection system called ExaSwitch. In addition to the news of the team-up, Lumen is likely also benefiting from some positive data on the inflation front that was released today.
So what
The ExaSwitch system from Lumen, Microsoft, and Google will make it possible to route internet traffic between networks quickly and efficiently without the need to cross connect with third-party services. Lumen Chief Technology Officer Andrew Dugan has stated that the new ecosystem represents the future of network interconnections and that optical switching would enable network capacity to be deployed across all types of data traffic exchanges. It's clear that the market is excited about the new service and partnership with two tech giants.
Lumen also got some good news in the form of the latest consumer price index (CPI) data. The report showed that the inflation-tracking CPI rose just 0.1% on a sequential basis and 4% year over year. With signs that inflation is continuing to moderate, there is less pressure on the Federal Reserve to raise interest rates. Given that Lumen has lots of debt, that's good news for the telecom company.
Now what
Lumen is undertaking a substantial transformation initiative that sees the company pivoting away from copper-wire based services to those built on higher-performance fiber optics. It's also looking to edge computing and managed network services as key parts of its turnaround, and ExaSwitch seems to be a promising step forward in that area. But the market appears generally bearish about the comeback push.
Even with the recent rally, the company's stock is down roughly 59% year to date. Valued at less than 15% of this year's expected sales, Lumen stock could have big upside if the business can make meaningful progress with its turnaround.
