Jensen Huang to Spend $13 Billion to Take On OpenAI and Anthropic. Should You Buy Nvidia Stock?
Key Points
This morning, CEO Jensen Huang announced Nvidia's agreement to acquire Hugging Face for $12.9 billion.
Hugging Face is best known as the target of the rogue OpenAI agentic bot security breach in July.
This is another move by Huang positioning Nvidia for long-term dominance of the AI chip industry.
Open-source AI platform Hugging Face is in the news for the second time in as many weeks. But this time, it's good news.
Last week, it was because OpenAI released new details about the security incident in which OpenAI's agentic bots "broke containment," gained unauthorized access to Hugging Face's servers, and took over parts of its system.
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This morning, Nvidia (NASDAQ:NVDA) CEO Jensen Huang announced a different kind of takeover of Hugging Face. But he's not using agentic AI: he's using good old-fashioned money to buy the company.
Here's why Nvidia has agreed to pay nearly $13 billion for Hugging Face, and the impact the acquisition might have on Nvidia's stock.
Nvidia CEO Jensen Huang. Image source: Nvidia Corporation.
What Hugging Face really does
Most people only know about Hugging Face from news reports of the OpenAI security breach. But Hugging Face is more than just a random website that got hacked.
Hugging Face is an open-source repository for tools related to AI and machine learning. It's often likened to GitHub, the primary online repository and platform for computer code.
Hugging Face hosts pre-trained, task-specific AI models, AI training data sets, cloud-based AI testing environments, and libraries of code for AI-related tasks.
And this isn't a tiny community. As Huang pointed out in his blog post announcing the deal, "More than 18 million developers, researchers and creators use Hugging Face to share more than 3 million models, 500,000 datasets and 1 million applications. More than 200,000 companies use the platform to discover, evaluate, customize and deploy AI."
Image source: The Motley Fool.
Why did Nvidia buy Hugging Face?
Nvidia has been interested in buying Hugging Face for a while. Hugging Face reportedly turned down Nvidia's $500 million investment offer late last year, which would have valued the company at $7 billion.
But the company generates just $150 million in annual revenue, making a $13 billion valuation – well, $12,930,300,000, to be exact – very rich indeed. Why would Nvidia be willing to pay so much for such a modest business?
Right now, Nvidia dominates the AI chip market, and it's not even close. But closed-source AI labs -- including OpenAI, Anthropic, and Alphabet's (NASDAQ:GOOG)(NASDAQ:GOOGL) Google -- have been trying to develop their own AI chips, either on their own or in partnership with other companies like Amazon (NASDAQ:AMZN).
Nvidia seems likely to continue to dominate the top-of-the-line chip market. But as AI computing becomes more widespread, the market for "not-the-best-but-good-enough" AI chips is expected to grow, and Nvidia can't afford to lose out on chip sales if the closed labs develop their own proprietary chips optimized for their AI models.
A thriving open-source AI model community would, by definition, be chip-agnostic. That would allow Nvidia to retain a larger market share even if closed-source models move away from Nvidia's technology. That's one reason Nvidia has been investing heavily in building its own open-source AI models.
How will it affect Nvidia's stock?
Nvidia brought in $96.2 billion in sales in its most recent quarter, so the amount of revenue to be gained from this acquisition is practically a rounding error for the company. Instead, it's about maintaining dominance of the fast-growing AI ecosystem.
Jensen Huang has been very smart in recent years about establishing partnerships with companies across the AI usage spectrum. Nvidia provides these partners with access to its chips, hardware, and software, helping to ensure the next generation of AI models and infrastructure are designed to Nvidia's specifications.
This acquisition is another forward-looking move by the Nvidia CEO, showing he's thinking not just about next quarter's results but about Nvidia's long-term dominance.
It's also possible that Nvidia has seen the massive revenue gains posted in recent quarters by cloud providers like Amazon Web Services (AWS) and Google Cloud Platform and is regretting its decision to scale back its own DGX Cloud business.
Hugging Face's existing cloud-based developer tools could help Nvidia reestablish itself in the cloud services market. And that's no small potatoes! Google reported $24.8 billion in Google Cloud revenue in the most recent quarter.
So while this might seem like a minor acquisition for Nvidia in terms of numbers, it's likely to have an outsize impact on Nvidia's long-term performance. It bolsters the thesis that Nvidia is a long-term buy.
John Bromels has positions in Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, and Nvidia. The Motley Fool has a disclosure policy.