Jacob Sonenshine Sees MU Buy Opportunity, TER & SO as Hidden AI Plays

there are a number of lesser known ways to play the recent trend. So joining us now is Jacob Sonenshine, stock picker writer at barrons. Jacob, thanks so much for being with us. Now, Southern Company has been one of the biggest utility beneficiaries of the AI trade. So as investors look for companies that can meet the massive power needs of these new data centers, what gives you the confidence that the demand story for Southern Company still has some further room to run? So, you know, I, I was looking at utilities a few days ago. I was like, I think I need to take a little bit more of a look at the political backlash situation. And what I came away with, with Southern Company was that Southern Company is one of utilities that's going to be able to execute against what states want to see, which is, you know, financing in place for new data center projects. Remember, a utility puts a dollar of CapEx to work, and you can expect more dollars of earnings based on the rate of return on equity that states allow them to have. But they're putting that that CapEx money to work. And they're they're trying to grow earnings per share 7 to 8% annually, they said at a recent conference with investors and analysts that they're still on track to do that. Looks like they've got an agreement going for over 20 years with with OpenAI for a data center. They filed something with the state of Georgia, remember Southern Company, right? So they filed they filed something the state of Georgia before the agreement with OpenAI. And it looks like they have demand and financing and funding in place. And it's it's it looks like all systems go for Southern company. And the last thing I'd say is stocks trading at 18 times when I have a utility that's going to grow earnings at 7 to 8% annually and grow that dividend as well, that's a stream going out in the long term of cash flows to the shareholder. That's probably worth a lot more than 18 times maybe worth more than 20 times. And the stock can trade up there when utilities are more in favor. So you know, I would definitely give Southern Company a look. Okay. So staying on this AI theme, micron is also one of your top hardware picks. And so as far as this is a very different performer than what we just talked about with southern companies. Micron you know, climbed 224% this year. And so I assuming you're thinking that you have not missed the boat here and that there's still, I mean, further upside to be had in micron. So if you want to provide a volatility buffer to your portfolio and you want to, you know, do something to avoid a margin call or something like that, because chips are so volatile, you buy a utility like Southern Company or American Electric. But if you're ready for risk, if you're ready for a little risk on, I think you can go for micron because it's trading, it's trading at like five and a half times forward earnings. And it's not quite, but not quite at its trough p e historically but close now. The company said to expect continued tight supply conditions relative to demand in 2027. And they used word the word beyond. And when I lined that up, I trust them because when I line that up with the fact that semiconductor stocks, the chart has tracked not perfectly but closely the way semiconductors traded in the late 90s and early 2000. It looks that chart shows you I overlaid it. That chart shows you, you know, that the SOX has more to go to the upside. You think micron would not participate in that? Yes it would. The earnings growth is probably going to be explosive. It's washed out maybe a little bit more downside. But I I'd go in and buy some shares here. Okay. Teradyne is another outperformer that's on your list. And so is AI spending really continues to ramp. I mean, how important then is semiconductor testing equipment to that broader story? So right. Testing equipment. And so there's what, 2 or 3 testing equipment players in the market. It's not it's not an extremely competitive market. And so, you know, you make you make more chips. You need to, you need to do the tests and all that stuff. There's Teradyne, there's advent, advent test, advent test, which is a company that that does you can trade the shares in the US, I believe. And then there's Cohu COHU small cap, and it's starting to ramp up a little bit. But, you know, this is this is an industry where Teradyne is built and ready to enjoy more of a demand tailwind. And so I think it's just, you know, one name of many that can benefit. But but why not take a look? Because, you know, there are there is some intense competition within chips. Maybe with with Teradyne, you get a little bit, you get something a little bit closer to a moat like business. Okay. I wanted to also get your thoughts on Citizens Financial because this is not a traditional AI stock. I mean, of course. So how is AI then improving the bank's economics? And why do you think we're at the street is just overwhelmingly so underappreciated that benefit. Right. And now, you know, if I thought the capital markets were going to dry up and the economy were going to head south and and rates were going to be a problem, you know, you wouldn't pick a bank stock. I think we're still in a bull market. We're still in an economic expansion. And I think we will be even if growth moderates. So that frees you up to look at banks. Which banks do you want. Well, I like CFGI did a pick on it. I picked it two maybe three weeks ago here at Barron's. Citizens financial is doing a number of things to become more efficient and increase its operating margins. And one of the things it's doing is it's, it's like many banks that's using AI to do tasks where it can, you know, replace costs and replace some humans. But the bank was the management team. And the CEO, Bruce Van Saun, who I spoke with has been very, very clear about hundreds of millions of dollars of annual cost savings because of the AI usage. And do I think CFG Citizens Financial can catch up in terms of operating margins and the other bank efficiency metrics and credit quality and all those things to to its peer group, you know, super regionals? Absolutely. Do I think that that can cause the p e multiple to rerate closer to some other peers like fifth Third Bank and M and T and PNC? I absolutely, I mean, if it happens that your p e is going to Rerate. And I think that that efficiency, that margin story from AI is, is, you know, it's, I think it's close to a lock with just how well citizens executes. Okay. So looking across all four of those names and southern Company, micron, Teradyne, and Citizens Financial, what common theme connects these ideas and where do you think investors can be finding the best AI opportunities beyond these obvious Megacap winners? I think the common theme that connects the physical players, the hardware and the utility. And I mentioned obviously Southern Copper and there's American Electric that I like as well. The theme is that they're everyone knows and you can see the chip market, the utility stock market has been concerned. And everyone knows that growth of data center spending is going to slow down. But the question is, can I buy some of these stocks at now favorable valuations? And will there still be pretty good growth. And you want to be careful because like if you have a time horizon that where you're afraid that like, you know, a bubble could burst or something like you still want to manage around that manage, manage things prudently. And yes, take your profits after rallies and trim your positions a little bit. Now is not that time. Now we've gotten this big washout. And so the growth of the data center spend, I do think is intact. And I do think that's the connecting theme in the hardware. And then for citizens, they're just on the other side of that spending. They're not building data centers or getting revenue for, you know, chips, data centers, electricity. They're using the AI software to become more efficient. That's the whole point of AI. So Citizens Financial's on the other side of that trade, and I do think it will benefit. I like that some new names to discuss in terms of the AI conversation, because we cycle through a lot of the same players and the dominant force is quite, quite so often so nice to discuss some some other names like citizens. Great, great discussion today and reall