Nvidia Strikes $12.9B Hugging Face Deal After Strong Q2 Earnings Beat

Nvidia is having great week. The chipmaker posted a strong earnings beat on Wednesday, and hours later, reports surfaced that it had agreed to buy Hugging Face, which is one of the most popular hubs for open-source AI models.

The Information first reported the 12.9 billion acquisition on Thursday. Business Insider had reported over the weekend that Hugging Face was already fielding takeover interest, and later added that a signed agreement had not yet been finalized.

Nvidia’s strong earnings set the stage for the deal

The acquisition news came right after Nvidia delivered another blowout quarter. The company reported second-quarter revenue of $96.2 billion. The firm more than doubled what it raised a year earlier and also beat the $92.4 billion analysts expected. The strong results gave the company more financial firepower heading into a major acquisition.

Hugging Face is one of the most used platforms where developers build, test, and share open-source AI models. Buying it would push Nvidia further into the software and model side of the AI industry.

Experts have shared that the acquisition could be linked to the growing competition. Many of the top closed-source AI labs, like OpenAI and Google are working on building their own AI chips to reduce how much they depend on Nvidia's hardware. 

A booming open-source AI ecosystem gives developers alternatives to closed labs. No matter which models ultimately win, much of that market share would still depend on Nvidia's chips. That, in short, is the logic behind the deal.

Fund manager Siddy Jobe of Eonopolis Exponential Technologies said the fit makes sense given the company’s ambitions. 

"I think Nvidia is very much a community, a platform-based company, and in that respect, I think Hugging Face fits perfectly within that. Nvidia wants to be integrated in the entire stack vertically, going from energy to foundational models and also to applications."

Hugging Face CEO Clément Delangue has spent much of the year aligned with the AI chip firm’s open-source push, at a time when officials in Washington have debated restrictions on open-weight AI models. 

A second offer, and a path back into cloud computing

The chipmaker had initially offered $500 million for a stake in the company late last year. That deal would have valued Hugging Face at $7 billion. 

Hugging Face turned it down at the time, reportedly because it didn't want a single investor with outsized influence over its decisions. However, a total buyout changes that since it removes the question of a dominant minority partner.

The deal could also hand Nvidia a way back into cloud computing. The firm had initially scaled back on the business about a year ago. 

Hugging Face already lets developers rent computing power to run their AI models. Adding this into Nvidia could give the chipmaker a ready-made outlet for that market without starting from scratch. 

It would also give the firm a place to offload unused cloud capacity linked to the tens of billions of dollars in computing commitments it promised to help cover for its customers.

Hugging Face was recently generating around $150 million a year in revenue, according to reports, and had gotten close to profitability.