Southern Company (SO): A Utility Built for the AI Power Boom
Southern Company (SO) stands out among utilities as one that can deliver what states want to see: financing in place for new data center projects. The mechanics matter. A utility spends a dollar of capex, then earns extra dollars based on the return on equity that states allow. Southern (SO) is putting that capex to work to grow earnings per share 7% to 8% each year, and at a recent conference with investors and analysts said it remains on track.
The company has a deal running over 20 years with OpenAI for a data center. It filed paperwork with the state of Georgia before the OpenAI agreement. Demand, financing, and funding all look to be in place - all systems go.
On price, the stock trades at 18 times earnings. A utility growing earnings 7% to 8% a year and raising its dividend produces a long stream of cash flows to shareholders that is likely worth more than 18 times, maybe more than 20 times. The stock can trade up there once utilities come back into favor. Worth a look. American Electric (AEP) is another utility I like.
The political backlash risk to utilities is real and worth checking, but Southern (SO) is positioned to execute against it.
Micron (MU): Cheap and Early Despite a Big Run
Micron (MU) is up 224% this year, yet the upside is not gone. Chips swing hard. If you want a volatility buffer or need to avoid a margin call, buy a utility like Southern (SO) or American Electric (AEP). If you are ready for a bit of risk-on, Micron (MU) fits.
The stock trades at about 5.5 times forward earnings, close to its historical trough price-to-earnings, though not quite there. The company said to expect tight supply against demand in 2027 and used the word "beyond." I trust that guidance. Semiconductor stocks have tracked - not perfectly but closely - the way chips traded in the late 1990s and early 2000s. An overlay of that chart shows the SOX index has more room to run higher. Micron (MU) would take part in that move. Its earnings growth is likely to be explosive. The stock is washed out. Maybe a little more downside, but I would buy shares here.
Teradyne (TER): A Near-Moat in Chip Testing
More chips mean more testing. The testing equipment market has only two or three players, so competition is light. Alongside Teradyne (TER) there is Advantest, whose shares can be traded in the US, and Cohu (COHU), a small cap starting to ramp up.
Teradyne (TER) is built and ready to enjoy more demand as AI spending ramps. It is one of many names that can benefit, but it is worth a look because inside chips the competition is intense, while Teradyne (TER) gives you something closer to a moat-like business.
Citizens Financial (CFG): AI Cutting Costs, Not Building Chips
Citizens Financial (CFG) is not a typical AI stock. It benefits by using AI software to become more efficient, replacing costs and some human tasks - the whole point of AI.
You would not pick a bank if capital markets were drying up, the economy was heading south, and rates were a problem. We are still in a bull market and an economic expansion, and will stay there even if growth moderates. That frees you to look at banks, and I like CFG - I made this pick at Barron's about two or three weeks ago.
CEO Bruce Van Saun has been clear about hundreds of millions of dollars in annual cost savings from AI use. Citizens (CFG) can catch up to its super-regional peers on operating margins, bank efficiency metrics, and credit quality. That can push its price-to-earnings multiple to rerate closer to peers like Fifth Third (FITB), M&T (MTB), and PNC (PNC). Given how well Citizens (CFG) executes, that margin story from AI is close to a lock.
The Common Thread
Across the physical, hardware, and utility names - Southern Company (SO), Micron (MU), Teradyne (TER), plus American Electric (AEP) - the theme is the same. Everyone knows data center spending growth will slow, and that fear has weighed on chip and utility stocks. The real question: can you buy these at now-favorable valuations and still get good growth? After this big washout, the growth of data center spending is intact.
Manage risk with care. If you fear a bubble could burst on your time horizon, take profits after rallies and trim positions. Now is not that time.
Citizens Financial (CFG) sits on the other side of that spending. It does not build data centers or sell chips or electricity - it uses AI to cut its own costs, and it will benefit too.
