Nvidia agrees to buy Hugging Face for almost $13 billion, expanding further up AI stack

Nvidia announced on Thursday that it plans to acquire Hugging Face, a popular developer platform, for US$12.93 billion. This substantial deal, ranking among Nvidia's biggest, signals the company's confidence in the future demand for open AI models. Despite its customers developing their own chips to decrease reliance on Nvidia, the semiconductor giant sees significant value in the open model market.

This market allows users to freely download, run, and customize AI models, unlike closed systems created by companies like OpenAI and Anthropic. Nvidia has previously supported the open AI industry through its widely used Nemotron model.

The acquisition will grant Nvidia direct access to a platform where developers collaborate, test, and share tools using various open AI models. This could provide valuable insights and data to help Nvidia narrow the technology gap with top US and Chinese labs. Hugging Face will continue to operate as an open platform for the entire AI ecosystem, with Nvidia's chips not required for building or deploying through the platform.

The deal values Hugging Face at about $11.9 billion, with Nvidia paying Hugging Face investors and offering an equity-based retention program for up to $1 billion for employees joining Nvidia.

Nvidia's financial strength is substantial, with $22.44 billion in cash and cash equivalents, more than double the $10.61 billion it held in January. This financial capacity enables the company to fund the acquisition. Nvidia's recent expansion is evident in its financial performance, as it issued a rare year-ahead revenue outlook forecasted to grow by about 70% in fiscal 2028.

However, the company's use of its balance sheet has raised concerns among investors, who question whether Nvidia is supporting the demand driving its growth. Nvidia's role in backing open source may help it cushion a potential demand slowdown from customers like Meta, OpenAI, and Microsoft, which are developing their own AI chips to reduce reliance on Nvidia's processors.

Hugging Face, founded in 2016 by French entrepreneurs Clément Delangue, Julien Chaumond, and Thomas Wolf, is a New York-based startup that offers datasets, software libraries, and cloud services for building and deploying AI applications.