Lumen Technologies, Inc. LUMN and Cogent Communications Holdings, Inc. CCOI are both primarily enterprise-focused fiber network providers that deliver high-capacity, long-haul fiber networks powering everything from cloud services and streaming to AI data transfer and enterprise connectivity.

Higher demand for bandwidth-intensive applications stemming from AI workloads and cloud infrastructure is providing ample business scope for these two players as they try to make the most of the next wave of digital infrastructure.

So, now the question arises: Which stock makes for a better investment pick at present? Let’s dive into the fundamentals, valuations, growth outlook and risks for each company.

The Case for LUMN

Lumen is a global communications services provider that operates advanced fiber-optic networks delivering high-capacity data transport, edge computing, cloud connectivity, and cybersecurity. Moving away from legacy telecom, LUMN has made a sharp pivot to AI and is focused on building the backbone for AI and cloudifying telecom.

Driven by significant AI-fueled connectivity demand, Lumen has secured a total of $8.5 billion in PCF deals in 2024. As AI needs surge, large companies across various industries are urgently seeking fiber capacity. Lumen has inked deals with various tech giants like Microsoft MSFT, Amazon, Google Cloud and Meta Platforms to provide the network capabilities for AI innovation. Last July, Microsoft selected Lumen to expand its network capacity and support the development of its next-generation applications for global Microsoft platform customers. It recently partnered with Google Cloud to deliver cutting-edge cloud and enterprise network solutions that offer the scalability, security and performance required for AI-driven digital transformation.

Increasing demand for Lumen’s services, particularly for Waves and IP in its large enterprise and mid-market segments remains a highlight. In 2024, the company expanded its high-speed IP service to include 400-gig ports in 14 other markets. 400-gig Waves are available in more than 70 markets. It witnessed a nearly 50% increase in 100 and 400-gig wave sales across large enterprise and mid-markets in 2024.

Lumen aims to grow its total inter-city fiber miles from 12 million in 2022 to 47 million by 2028. Lumen is focusing on expanding its network capacity while simultaneously increasing the utilization of existing infrastructure. Lumen expects to increase the overall network utilization from 57% to 70% from 2022 to 2028. The increase in utilization is fueled by growing demand from hyperscalers, which are leasing previously underutilized conduits and funding new network builds.
Lumen is anticipating $1 billion in cost savings by the end of 2027 through planned infrastructure simplification across the network, product portfolio and IT. In the current year, it expects more than 250 million of run-rate cost benefit.

Nonetheless, LUMN’s debt problem is hard to ignore. As of Dec. 31, 2024, the company had $1.889 billion in cash and cash equivalents with $17.494 billion of long-term debt. Secular headwinds in the legacy business and stiff competition in the AI space from the likes of Cogent remains a big concern.

The Case for CCOI

Cogent is a Tier 1 Internet Service Provider that offers low-cost, high-speed Internet access, private network services, and colocation center services with ultra-low latency data transmission.

The company excels in selling larger 100 gigabit and 400 gigabit connections in select locations, resulting in a shift in its connection mix and significantly lowering its average price per megabit. By using Internet routers without additional legacy equipment, Cogent incurs relatively lower costs compared to its competitors. The company's efficient network expansion and integration execution ensure high-quality Internet service, leveraging its highly economical metro and intercity network infrastructure. Cogent's seamless network delivers high throughput, reducing the frequency of dropped data packets during transmission compared to traditional circuit-switched networks, thereby establishing a more reliable and robust network infrastructure.

The acquisition of the Sprint network assets has bolstered its wavelength and optical transport business, where it competes with Lumen. In the last earnings call, CCOI highlighted that the acquisition boosted wavelength sales capability and connectivity to 808 locations across North America, surpassing the goal of 800 sites by 2024. The buyout also expanded CCOI’s data center footprint by adding the reconfigured 115 acquired Sprint facilities to its 1,646-strong carrier-neutral data center footprint. The increasing scale of infrastructure will aid Cogent in capturing a greater share of enterprise, cloud and carrier demand, thereby boosting top-line expansion. In the last reported quarter, Wavelength revenues were $7 million, up 124% from the year-ago quarter. The segment's customer connections were 1,118, up from 661 in the prior-year quarter.

The company has achieved over 90% of the targeted $220 million in annual savings from the integration of Sprint assets. It continues to expect cost savings through 2026 and now expects it to top the initial target of $220 million.

However, as with all the players in this space, a highly competitive market remains a concern along with macroeconomic challenges. Weakness in net centric business and heavy debt laden balance sheet are additional concerns.

Price Performance and Valuation for LUMN & CCOI

Over the past month, LUMN has declined 36.8%, while CCOI has lost 24.4% over the same period.

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Valuation-wise, Cogent is overvalued, as suggested by the Value Score of F while LUMN’s Value Score is A. 

In terms of Price/Book, LUMN is trading at 6.78X, lower than CCOI’s 11.41X.

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How Do Zacks Estimates Compare for LUMN & CCOI?

Analysts have significantly revised their earnings estimates upwards for CCOI’s bottom line.

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Meanwhile, for LUMN, there is no change.

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LUMN or CCOI: Which is a Better Pick?

The stocks carry a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Though both the companies are striving to  capture a larger slice of the enterprise fiber market, Lumen appears to be the more compelling investment opportunity at the moment. Despite debt concerns, Lumen’s sharp pivot into an AI infrastructure market and its solid partnerships with tech giants bode well, while CCOI’s shrinking net-centric segment and limited product diversification make it more vulnerable to competitive pressures. However, with an attractive valuation, LUMN is relatively better placed than CCOI, although both appear to be on a level playing field in terms of Zacks Rank. Consequently, Lumen seems to be a better pick at the moment.

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This article originally published on Zacks Investment Research (zacks.com).

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