Nvidia is said to be negotiating to acquire Hugging Face for $12.9 billion.

      Nvidia is reportedly in negotiations to acquire Hugging Face, with a valuation exceeding $13 billion, as indicated by Business Insider. This comes shortly after other reports suggested that the open-model hub was contemplating a sale around that same figure. The Information claims the deal is further along, stating an agreement has been reached at $12.9 billion, although Nvidia has not responded to a request for comments.

      According to Business Insider, the discussions have not yet resulted in a signed contract and could still collapse, while The Information suggests that a deal is already finalized; however, neither firm has confirmed either scenario. Nvidia's lack of communication is what stakeholders are examining most closely, as the company has previously acted quickly to refute inaccurate claims, but has remained silent in this case.

      One intriguing aspect of this situation is that Hugging Face has previously rejected Nvidia's offer. It turned down a $500 million investment that would have set its valuation at $7 billion, based on the rationale that no single investor should dominate what is intended to be neutral infrastructure. This stance was based on governance concerns rather than price negotiations, with the perspective that the repository for model storage should not be influenced by the chip supplier.

      Since its 2023 funding round, in which it secured a post-money valuation of $4.5 billion led by Salesforce Ventures along with Alphabet, GV, and IBM Ventures, Hugging Face's valuation has nearly tripled. CEO Clem Delangue mentioned earlier this year that the company was nearing profitability and had only recently begun utilizing the capital raised three years ago.

      In terms of revenue, the reported acquisition price is notable. The Information suggests Hugging Face generates around $150 million in annual revenue, increasing from about $100 million just two months prior, which would mean the $12.9 billion valuation represents approximately 86 times its sales.

      Delangue has also been quite clear about not steering the company toward an exit, emphasizing that Hugging Face values “long-term sustainability” over “short-term profits or fundraising maximization.” Selling to Nvidia would drastically contradict this ethos, thus warranting caution regarding the reports.

      For Nvidia, the strategic interest lies more in distribution than in revenue. Hugging Face serves as the host for model weights, datasets, and tools that the majority of the open-source AI community relies upon, making ownership of such a platform significantly more valuable than simply the related subscription revenues.

      This potential acquisition would align with Nvidia's pattern of investing over $40 billion in AI equity this year, including outright acquisitions like Kumo in June. Nvidia's recent quarterly report showed $7.77 billion in net gains from equity securities, indicating that its current strategy is self-sustaining.

      The question of neutrality remains pertinent, irrespective of Hugging Face's change in perspective on the buyer. Nvidia has spent the year publicly positioning itself as a supporter of open models, notably ignoring an open-weights letter that OpenAI did not participate in. Owning a repository outright is fundamentally different from merely endorsing it.

      During this time, Delangue has asserted that open models represent the primary competitive landscape, and that Chinese laboratories have been dominating that space. The prospect of an American chip manufacturer controlling the main distribution platform for these models could attract attention from regulators in various jurisdictions.

      Antitrust issues are a significant complication, yet have not been publicly acknowledged as concerns. Nvidia is already being scrutinized for its role in AI accelerators, and acquiring the platform that serves as the community's default hosting layer is precisely the type of vertical integration that regulatory bodies monitor.

      Additionally, there are concerns regarding the community's dynamics should ownership transfer. A significant portion of Hugging Face's value stems from voluntary contributions by researchers who upload weights to a platform perceived as neutral and not tied to any specific vendor.

      As it stands, we only have unverified reports and no official confirmation from either side.