Commentary: US$13 billion Hugging Face deal would crown Nvidia king of AI

Nvidia's acquisition of Hugging Face for $13 billion may appear to align with the company's desire to promote open AI models, but it serves a more self-interested purpose, according to Parmy Olson for Bloomberg Opinion. On the day Nvidia announced a doubling of its quarterly revenue, it was revealed that the chip giant has agreed to spend $13 billion on Hugging Face, a platform for open-weight AI models.

Hugging Face, founded by three French entrepreneurs, hosts one of the world's largest collections of open-weight models, promoting the idea that AI development should be open to everyone. The startup turned down a $500 million investment from Nvidia last year, fearing concentration of power would pose the biggest risk in AI. The deal may be driven by Nvidia's need to counter OpenAI and other large AI companies that could threaten Nvidia's chip business.

OpenAI recently announced strong results for a custom AI chip called Jalapeno, outperforming some of Nvidia's advanced versions. While Nvidia enjoys gross margins of around 75 percent and forecasts chip sales to grow by 70 percent in the next fiscal year, the $13 billion price tag for Hugging Face indicates a high sales multiple (about 86 times annualized revenue).

The acquisition could provide Nvidia with greater influence over developers and rev up its cloud ambitions, giving it another way to rent computing power to AI makers. However, the purchase may also represent a sellout for European tech startups and the open-source AI movement itself. Hugging Face's neutrality is questioned if it provides Nvidia with a new route to persuade developers to choose its hardware for their models.