Telecom specialist Lumen Technologies (LUMN -0.62%) just announced the sale of its mass-market fiber business to AT&T for $5.75 billion. That move continues the transformation which began last summer when it partnered with Microsoft to leverage its existing network to strengthen connectivity among Microsoft's data centers. It has also agreed to provide similar services to Amazon and Meta Platforms.

The sale of the mass markets fiber business seems to confirm that Lumen is pivoting toward business and away from the consumer market. The question for investors is whether that deal will boost Lumen's stock over the long term.

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The AT&T deal and its implications

According to CEO Kate Johnson, the company will receive net proceeds of $4.8 billion. Lumen can use those funds to reduce its debt or support its growing need to increase its capital expenditures as the company tries to reinvent itself from what had been a declining wireline telco business.

Still, one has to assume Lumen will focus on debt reduction at some level. As of the first quarter of 2025, it holds $17.3 billion in long-term debt. The company's book value is only $289 million, so that liability has put tremendous strain on the company's balance sheet.

Moreover, the company has to build what it calls a "backbone" for artificial intelligence (AI) to serve its enterprise customers. To that end, Lumen plans to spend $4.1 billion to $4.3 billion in capex this year, presumably to help build that AI backbone. That is up 30% from the $3.2 billion in spending in 2024 but should enable the company to meet the needs of its new customers.

Does the deal boost the case for Lumen stock?

Nonetheless, investors may be right to question how much the deal helps Lumen as an investment. So far, the pivot toward enterprise has not boosted the company's financials. In the first quarter of 2025, revenue dropped 3% year over year to $3.2 billion. Although that is an improvement from the 10% drop in revenue in all of 2024, it still represents a decline.

Despite a net loss of $201 million, Lumen generated $354 million in free cash flow in Q1. Unfortunately, Lumen expects $700 million to $900 million in free cash flow in 2025, down from $1.4 billion in 2024. However, free cash flow will fall because of the increase in capex spending, not poor financial performance.

Investors do not know quite what to make of Lumen's transformation. The stock is up 200% over the past year but down 64% from its peak in November. This likely indicates that investors are wary.

Measuring the valuation is also tricky. The lack of profitability leaves it without a P/E ratio. As for its price-to-sales (P/S) ratio, it is less than 0.3. That is up from 2024 lows but below the five-year average of 0.4, making it unclear whether Lumen's valuation will help draw investors back to its stock.

Should you buy Lumen Technologies stock?

Given the current state of the company, investors should probably limit stock purchases to speculative positions until its deals begin to drive positive revenue growth.

Prospects for a turnaround have improved thanks to the aforementioned AI partnerships, and the cash infusion from the sale of the consumer fiber business greatly increases the odds of a turnaround.

Unfortunately, these deals have not translated into an improved financial performance. Lumen's revenue continues to fall, and forecasts indicate that trend will continue through 2025 and 2026. Ultimately, until revenue growth turns consistently positive, Lumen stock will probably struggle to move higher.