Nvidia's acquisition of Hugging Face doesn't make a whole lot of sense on financial grounds. But it's a lot more logical if you think about it as an insurance policy for the chip maker.
The $12.9 billion purchase, announced Thursday, is a hefty one. Hugging Face is estimated to be generating annual revenue of about $150 million, so Nvidia is acquiring the artificial-intelligence development platform at a price-to-revenue multiple of about 86 times.
That kind of revenue barely registers Nvidia. But the prize is a community of 18 million users who can hopefully be persuaded to build AI on Nvidia hardware. Hugging Face CEO Clem Delangue told reporters he hopes to grow that number to 100 million users in the next few years.
At the moment, Nvidia generates most of its revenue from a small base of large customers, such as OpenAI, which trained its latest GPT-6 Astra model on Nvidia's hardware. But OpenAI also uses its own custom chips, designed in collaboration with Broadcom, and other major tech companies are looking to lessen their dependence on Nvidia. Hugging Face can be the platform for future customers to reach the scale where they need significant numbers of chips.
"The acquisition serves as a hedge for Nvidia against the growing trend of closed/proprietary model builders running workloads on custom/proprietary hardware from vendors like Broadcom and Marvell," wrote Raymond James analyst Simon Leopold.
Nvidia has pledged to keep Hugging Face as a hub for open AI and not demand that developers use its chips to deploy models.
The open AI commitment might provoke some cynicism that Nvidia will begin pushing its own hardware on Hugging Face's users in a few years, once the regulatory attention has died down. But that would likely drive away developers and ruin the value of the platform for a relatively small revenue boost.
"Nvidia's explicit promise to maintain model, cloud, provider and hardware choice is...economically necessary," wrote StoneX Research analyst Cody Acree. "We believe the highest-value operating model is a neutral discovery and collaboration layer with an optional, differentiated Nvidia deployment path."
As an acquisition, Hugging Face looks pricey. But as insurance for a $5 trillion business, it could be pretty cheap.
Nvidia shares were rising 1.5% in Friday's premarket, while its chip peers Intel and AMD were up 1.8% and 1.6% respectively.
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