Nvidia's (NVDA 4.17%) stock has generated life-changing returns for many investors, thanks largely to its connection to artificial intelligence (AI) and the expanded interest in that sector of the economy. If you invested $33,000 into the stock five years ago and held onto it, you would be holding a $1 million investment right now. That's a staggering return in a relatively short time frame, especially when you consider that it was already a formidable, large, and fairly safe company to invest in at the time.
But given such supersized gains, it's hard not to question just how much more upside this AI stock can achieve from here on out. Five years ago, its market cap was around $100 billion. Now, it's just under $3.1 trillion. I'm sure Nvidia can still rise in value, but expecting it to double or triple within the next five or 10 years seems a bit optimistic, given its already rich valuation. I'm not saying it's impossible, only that it's improbable.
If you are looking to invest now in the potential of AI, there just might be a better (if perhaps a bit riskier) option than Nvidia that offers much more upside: Lumen Technologies (LUMN +0.57%). Let me explain.
NYSE: LUMN
Key Data Points
Lumen's stock has been scorching hot
Lumen Technologies may just be the hottest stock on the market at the moment. In just the past month, it has tripled in value. Lumen is a telecom company previously known as CenturyLink, and recent developments it is involved in make Lumen an intriguing artificial intelligence (AI) play.
Lumen doesn't make AI chips, but it is benefiting from AI. What set the stock on fire of late was a deal involving tech giant Microsoft. Microsoft plans to use Lumen's fiber products to help increase its network capacity and enable it to meet heightened demand related to its AI efforts. Through AI and the use of Microsoft's cloud, Lumen expects to bring down its expenses and improve its offerings to customers. By doing so, Lumen management estimates it can add $20 million in cash flow to its operations over the course of the next 12 months.
In terms of revenue, the Microsoft deal and other ones that Lumen has already secured could be worth $5 billion. Even better, the company is working on additional deals that could add $7 billion more. CEO Kate Johnson doesn't see this as a temporary boost, either. "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."
Lumen is a high-risk, high-reward stock that just got a bit safer
While Lumen managed some large deals recently, they will span multiple years. And there will be costs associated with the deals, so all that revenue won't go straight to the bottom line. There is definitely some risk here associated with the stock. However, given where Lumen has come from, the upside could be significant if it is able to lock in more deals and remain on its path to turn its operations around.
It was just a couple of years ago when the company stopped paying dividends, and there were serious questions about its business and long-term future. While the telecom stock is doing exceedingly well lately, over a three-year stretch the stock is still trading down 55%. It's trading at 10 times its trailing earnings and 0.5 times its revenue. The company has incurred a loss in three of the past four quarters, and it has struggled to generate revenue growth.
If it can close more AI-fueled deals, Lumen's valuation will likely rise higher, given that its share price remains down considerably from where it was just a couple of years ago.
Should you buy Lumen Technologies stock?
If you're a growth investor looking for a possible contrarian play, Lumen Technologies could make for an intriguing and underrated AI stock to buy right now. It's not a risk-free option for investors, but it's hard not to be a little bullish on its prospects, given that it has secured some large deals and is in talks to initiate a few others.
The company's future looks a whole lot safer and brighter than it was just a few months ago. It'll involve taking on some risk, but for investors who are comfortable in doing so and buying shares of Lumen, there's definitely room for the stock's valuation to rise a whole lot higher.
