look at the CNBC magnificent 7 index you know who those names are up more than 70% in one year AI of course one of the main catalysts here but my next guest is focusing on names Beyond big tech for the next leg of AI growth he has arranged them into three separate categories AI enablers supporters and users and he brings a Top Value pick in each joining me now for more is Aaron Dunn co-head of value Equity at Morgan Stanley Investment Management Aaron thanks for being with us um what is a value
pick how do you determine that is it a more reasonable valuation because we've seen sort of the valuations in the AI space just kind of go to the Moon over the last year yeah our our team really focuses on intrinsic Valu so we look at uh what's what's a really an undervalued stock or an undervalued company in the marketplace that's how we Define value it's not relative value and I think um you know when you're looking at some of the growth rates are pretty eye popping for a lot of these stocks b
ut we really focus on for our clients as Bing opportunity in the market uh that has been overlooked in our opinion um and as you said there's uh you know there's a couple buckets I put some some ideas in here yeah and we can talk about those yeah please do because a lot of the focus um at least in this early stage has been on chips or the semiconductors so you knows the picks and shovels of the AI shift where else are you looking yeah so in the uh in the enabler side or or the that that's what I
would uh we'll start there and I think Micron is one that we've held actually for quite a while and the reason we initially entered Micron was because you have a Consolidated memory chip business it's an old uh commodity business as most tech people would uh suggest but when you have a Consolidated industry you start to have better pricing power and what's really occurred with that you had a you had a down cycle and the one reason we really liked it was the balance sheet was exceptional right t
hey entered the downturn with uh net cash on the balance sheet so that gives us a buffer of safety what has happened for micron though is with Nvidia uh with nvidia's GPU development they've also developed high bandwidth memory hbm so this gives uh it sits right along next next to the GPU uh they've got a really good position with Nvidia as a partner in that that also allows 30% Energy Efficiency savings uh Nvidia talked about that as well uh when they had their most recent uh developer uh confe
rence and so uh in our view there's a lot here to like about Micron and if you go back to the uh kind of 2021 2020 period there was a real shortage of memory right and we really had a pinch we feel like you're back at that point also so there's a couple things going on with Micron that we think you still get a really nice valuation and a lot of upside let me ask you about another name snowflake if snowflake it feels kind of controversial for let's call it AI enthusiasts right now it was seen sor
t of as maybe this earlier play um a lot of data analytics but others have pointed out slow in growth been slower to embrace AI in terms of m&a activ it's sort of abrupt CEO transition where are you on this name yeah so snowflake is not one we we hold or uh we invest in so I don't really want to speak to that uh as an investor um I'll just say you know I think there's a lot of places here uh within you know the spaces we operate where there's a lot of opportunity uh and we do look for management
changes and stuff as you mentioned with Snowflake and I think that's a key way to create value for clients um but you know I think just focusing on the rest of the value chain with a within AI gives us plenty of opportunity tell me about the AI supporters you say that they're the least understood area today and perhaps some of the best opportunities yeah there's been a lot of discussion about it and and I think when I say supporters I'm thinking utilities utilities were the worst relative perfo
rmance in 40 years last year as a sector it's off to a slow start again this year uh relative to the market but it's actually very interesting uh the the compound annual growth rate of electricity demand for many decades prior to you know the the 2000 period was you know 4% plus and then we entered this period of really flat demand what we're seeing with AI today is a reemergence of growth within the utility sector so how did these Hoyer scalers develop and provide uh or get the electricity they
need uh to develop these data centers and that's going to be through the utility sector you saw a nuclear deal uh that Amazon did uh to to secure some nuclear power that's considered grein or it's more increasingly be considered green energy so we we would look at a company like nextera clear a leader in renewable development uh got a lot of uh competitive advantages across the sector for helping Municipal Utilities across the country uh and their own and their own pipeline frankly to develop R
enewables to supply to Data Centers we think that's extremely interesting um thank you so much for your pick certainly the shift is going to require a lot of compute power thanks for being with us Aaron d
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