AI Shows Growth "For Now:" Tony Zipparro on Tech's Hidden Mixed Picture

**SPEAKER_1** (0:00)
Welcome back to Opening Bell. We're certainly getting ready here for Kevin Warsh's speech in Jackson Hole. That'll be at the top of the hour, but if anything comes out prior to that, we'll be sure to bring it to you.
Joining me right now with a look at the markets, Tony Zipparro, CEO Equity Set. So great to see you, Tony, on this Friday. Some of your thoughts on the earnings where you said headline numbers are lying in both directions. What does that mean?

**Tony Zipparro** (0:24)
Yeah, I think the numbers have obviously been very good in terms of what's reported. And I think where it's a little bit misleading is under the surface. A lot of what's driving those gains on one side is the AI capex, right? Not yet hitting revenue numbers, earning numbers. And so they look phenomenal, right? The growth is phenomenal. It's exceeded expectations. And I think that's where it gets a little bit tricky of like for now, there's a lot of momentum, there's a lot of optimism around that. But that's where it's not necessarily the full truth of what may play out over the next 6, 12, 24 months. And so headline numbers make corporate profits look phenomenal, especially for big tech, right? Semi hyperscalers, things like that.
And it's also inflating a little bit of the GDP picture, right? And I think what's been reported on a lot is if you strip out AI capex, you've actually got contracting GDP. And so it's really driving a lot of the growth that we're seeing and a lot of the optimism in the market.

**SPEAKER_1** (1:33)
Yeah, I think that's a great point because of GDP, a lot of that was the infrastructure, the build out that we've been seeing of data centers, right? And that brings some growth and jobs and work and GDP growth. But if this were to slow down, that would in fact mean a slower economy. Great point there.
There were some areas where we did actually see AI giving a boost, cybersecurity for example, the more AI adoption, the more cybersecurity we need. But your point is, where is the monetization? Where is the return on investment? A final quick thought on investors who love tech.

**Tony Zipparro** (2:11)
Yeah. And I think tech companies that are self-funding, right? And putting the cash to work and not issuing new debt. I think that it's a safer bet to lean towards those companies as we see how AI capex depreciation and the AI trade works out. So I think while the ones that are again issuing hundreds of billions of dollars of debt, getting investors to buy it, those again could go up exponentially. I think it's a riskier bet, not knowing exactly as the bond market, right? Treasuries compete with the private capital big tech market of all this money, you know, flooding for corporate bonds and treasuries.
And so I think it's a little bit, be a little cautious of pouring money into the companies that are just issuing new debt from a big tech trade. Look at the ones that are trying to self-fund using their cash, because those are going to be the ones that are a bit safer and maybe don't get as hard if the capex depreciation doesn't come home to roost sooner than later.

**SPEAKER_1** (3:11)
Right. Understood. So one could have exponential growth and could be very exciting, but also bring some risks. So balance that out. What about some other sectors or areas in the market for the next six months?

**Tony Zipparro** (3:24)
Yeah. I think one interesting thing you see on the macro side is a lot of people want to say, hey, the consumer is in dire straits. I think when you look at the data, you see that K economy where the bottom third is struggling, right? You've got auto delinquency, peak tire than ever, consumer sentiment at lows, and you've got reserves ramping up for buy now pay later or the subprime set of users. But credit cards, the prime borrowers, JP Morgan, the big banks, they're actually releasing reserves from losses. I think it's an interesting dichotomy of a lot of times you want to just say, hey, consumers are getting weaker, this is going to weigh on the economy. And so I think be weary of the sectors where they are more exposed to that bottom consumer, right? Affirm right before this, obviously phenomenal guidance, phenomenal earnings.
The stock is ripping, but that's exactly where I think don't necessarily look to commit too much money into those sectors that have wide exposure to the bottom third of the economy. Because it's clear that those type of individuals and consumers are potentially already in a deep recession, right? And not being able to kind of make it paycheck to paycheck and struggling. But it's those prime borrowers. And so that's where I think focus on the companies that because a lot of borrowers locked in low rates, that's why that 2008 kind of fear of mortgage and debts overtaking what incomes could do, that's not really playing out exactly as seen. So I think there's a lot of safe havens in terms of sectors. I think getting a little bit more defensive, right? Going towards companies that don't necessarily concentrate all their revenue and products and services into the bottom half of the economic kind of pool of revenue.