AI Infrastructure Spending Hits 3.63% of GDP as Modal Tops $1B ARR and Housing Costs Squeeze Consumers

Key Takeaways

1. Modal crosses $1B annualized revenue at a $15.75B valuation in a $750M Series D led by Accel, with usage tripling since Series C and up over 15x year-over-year.
2. AI infrastructure spending is estimated at 3.63% of GDP, exceeding railway, highway, internet, and electrification buildouts.
3. September CPI came in at +3.7% year-over-year with core at +2.6%, pushing October rate-hike odds nearly double the prior day.
4. The 30-year mortgage rate rose to 7.4% from 3.4% a decade ago, with median existing-home prices up from $235K to $418K and monthly payments up 178%.
5. The Fed faces $878B in unrealized losses on Treasuries and MBS bought in 2020, with the impact of 5% 10-year yields and 7%+ mortgage rates not yet counted.
6. S&P 500 top-10 holdings now represent 40% of market cap, up from 25% in 2020 and 26% in 1980.
7. Muddy Waters shorts Edison International ($EIX), alleging at least $4B and potentially ~$20B in liability for the Eaton Fire.

1. AI Models and Infrastructure

1. Modal has surpassed $1 billion in annualized revenue and raised a $750 million Series D at a $15.75 billion valuation led by Accel. Usage has tripled since the C round and grown more than 15x year-over-year, a pace Elad Gil flagged as remarkable. — via 1
2. AI infrastructure spending is estimated at 3.63% of GDP annually, a scale exceeding railway (2.24%), highway (1.13%), internet (1.10%), and electrification (0.5%) buildouts. — via 1
3. Meta Muse retention data is nearly on par with ChatGPT, with D7 above 30% (higher than ChatGPT) and D14 at 22% (slightly lower). It falls short of the elite D14 tier set by WhatsApp (67%), YouTube (59%), Instagram (54%), and TikTok/Snap (37%), but ranks among the highest-retention AI products. — via 1

2. Macro, Rates, and Housing

1. September CPI rose 3.7% year-over-year, above the 3.6% expected and 3.4% prior, while core CPI came in at 2.6% versus 2.5% expected and 2.4% prior. Month-over-month CPI was +0.6% as expected, but core CPI at +0.3% exceeded the +0.2% estimate. The three-month annualized core CPI rate jumped from 1.97% to 3.41%, and core services inflation reaccelerated to +3.1% year-over-year. October rate-hike odds nearly doubled from the prior day following the release. — via 1 2 3 4 5
2. Over the past decade, the 30-year mortgage rate climbed from 3.4% to 7.4% while the median existing-home price rose from $235,000 to $418,000. With 20% down, the down payment increased by roughly $37,000 and the monthly payment rose from $834 to $2,315, a 178% increase. — via 1 2
3. The Fed has been called the worst bond trader ever for buying trillions in Treasuries and mortgage-backed securities in 2020 when yields were at historic lows. As of June, unrealized losses reached $878 billion, and that figure does not yet account for the 10-year yield breaking above 5% or mortgage rates above 7%. — via 1 2
4. NFIB small business confidence weakened in September, with fewer owners expecting improved business conditions over the next six months and fewer viewing it as a good time to expand. The share of owners reporting higher rates on their most recent loan rose 4 percentage points to a more-than-one-year high, with average short-term loan rates at 8.2%, near the 8.3% historical average. — via 1 2
5. September existing-home sales fell 2.2% year-over-year, a slight improvement from August's -2.5% but the second consecutive negative month. The NAR housing affordability index turned negative year-over-year for the first time since January 2025, at -1.2%, with the Northeast at -4.5%, Midwest at -3.1%, South at -0.4%, and West at +1.0%. — via 1 2
6. MBA mortgage applications fell another 2.7% for the week ending October 9, following a 4.2% drop the prior week, as the 30-year fixed rate rose to 7.50%. — via 1

3. Markets, Positioning, and Valuation

1. The S&P 500's top 10 holdings now account for 40% of market cap, up from 25% in 2020 and 26% in 1980, a level Ben Carlson called quite remarkable. — via 1
2. Small-cap performance has reversed: two months ago small caps led large caps by 10 percentage points year-to-date, but large caps have now overtaken them. The cited reason is that rising rates and higher borrowing costs hit smaller companies harder. — via 1
3. Apple's current price-to-sales ratio is near 11x, the highest valuation level in company history. — via 1 2
4. Over the past seven years, the S&P 500 returned 16.9% annualized while US bonds returned just 0.4% annualized, a record spread of nearly 17 percentage points. The view warns investors should not expect the next seven years to repeat this. — via 1
5. Countering the bearish bond sentiment, one view argues bonds are offering the highest expected returns since 2002, citing a 97% historical correlation between starting yields and subsequent seven-year returns. — via 1 2
6. Momentum is one of only three large-cap factor indices in negative territory month-to-date, alongside high beta and pure growth. Equal weight briefly led momentum earlier in the year, but the relationship reversed sharply in April; in October equal weight began recovering relative to momentum, though the relative performance gap remains negative. — via 1

4. Corporate and Sector Developments

1. Muddy Waters Research is shorting Edison International ($EIX), claiming new information shows the company exhibited knowing or deliberate disregard in causing the Eaton Fire. The firm estimates at least $4 billion in liability, with actual liability potentially reaching about $20 billion, and alleges Edison knew its fire model failed to account for high winds for five years without fixing it. — via 1
2. Hyperscaler free cash flow is set to turn negative as AI capital expenditures exceed profits. — via 1
3. Despite rising bond yields in recent months, financial conditions have not materially tightened. — via 1
4. Real average hourly earnings fell 0.7% over the past year, and combined with a 0.6% increase in average weekly hours, real average weekly earnings declined 0.1%. Inflation has erased wage gains for six consecutive months. — via 1
5. Toy prices rose more than 6% year-over-year, the largest increase since the late 1980s, just ahead of the holiday season. — via 1
6. Social Security benefits will rise 3.6% in 2027, the largest cost-of-living adjustment since 2023. — via 1
7. A Pew poll shows the cost of household essentials like gasoline, food, and housing remains the top concern for most Americans, with fewer than one in four worried about stock market performance. — via 1