Forget Nvidia's Chips: Hugging Face Is the Real Reason to Own This Stock Now

Nvidia (NASDAQ: NVDA) remains the dominant supplier of graphics processing units (GPUs) used to train and run artificial intelligence (AI) models. However, its latest acquisition suggests the company also wants a stronger position in how developers choose and deploy those models.

On Sept. 2, Nvidia agreed to acquire Hugging Face, paying $11.9 billion to Hugging Face's shareholders and up to $1 billion in equity awards for employees joining Nvidia. The deal is expected to close in the first half of 2027, subject to regulatory approvals.

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The price looks steep given Hugging Face's current business model. The company was recently generating more than $150 million in annualized revenue (the latest monthly revenue was multiplied by 12). Using $150 million as a benchmark, the $11.9 billion shareholder purchase price equals roughly 79 times the revenue run rate. Including the potential employee awards takes the total deal value to around $12.9 billion, or about 86 times the annualized revenue.

The employee awards are also notable. The potential $1 billion retention package equals more than 8% of the amount being paid to shareholders. Hence, Nvidia is not simply paying for Hugging Face's current revenue or technology. Retaining the people behind its platform also appears to be an important part of the deal.

Hugging Face deal expands Nvidia's role beyond AI chips

Hugging Face platform hosts over 3 million models and is used by more than 18 million developers, researchers, and creators. More than 200,000 companies use Hugging Face to work with AI models, from evaluating and adapting them to putting them into production.

Hugging Face's extensive reach among developers and enterprises could become increasingly important to Nvidia as competition in AI chips intensifies. Meta Platforms, Microsoft, OpenAI, and other large technology companies are developing custom AI chips. Hence, AI demand can continue to grow even if a larger share of workloads eventually runs on chips made by other companies.

Hugging Face can give Nvidia another way to participate in the growing AI ecosystem. Developers can use the platform to find, customize, and deploy AI models while choosing how those models will ultimately run.

Every Hugging Face workload will not use Nvidia hardware. But the platform brings Nvidia closer to developers as they choose models, tools, and computing platforms, which could become more valuable as competition in AI hardware increases.

Hugging Face needs to remain open source

Nvidia has said Hugging Face will remain open across different models, frameworks, cloud providers, and computing platforms. Nvidia hardware will also not be required to build or deploy AI through the platform. Keeping that flexibility could be important to preserving Hugging Face's broad developer appeal, especially as Nvidia ownership has already raised concerns about possible favoritism toward its own hardware.

If Nvidia starts favoring its own GPUs on Hugging Face, developers using Advanced Micro Devices' chips, custom accelerators, or other hardware could have more reason to look elsewhere. Reuters has already reported concerns that Nvidia's ownership could eventually lead to preferential treatment for its own hardware, despite the company's commitment to keep Hugging Face open and interoperable.

Keeping Hugging Face open across different models and computing platforms could help preserve its broad developer network. More models and AI applications can create more workloads that require computing power. Nvidia can then compete for those workloads through its GPUs, CUDA software, networking products, and broader AI infrastructure offerings. This gives the company another way to remain relevant even if customers increasingly use competing or custom AI chips.

Open models can help Nvidia sell chips

Public model repositories on Hugging Face increased from 2.43 million to 2.96 million during the first seven months of 2026. AMD and Nvidia were also the two most active organizations publishing new open models, with each releasing more than 200 model repositories.

Hugging Face says hardware companies are increasingly using open models to demonstrate their chips and encourage adoption. Nvidia also makes a similar point in its regulatory filing for the acquisition. The company says demand for open-source foundation models and applications promotes the use of its products worldwide. However, it also warns that these models could reduce demand for Nvidia's products if they are primarily deployed on competing platforms.

Hence, growth in open models can create both opportunities and risks for Nvidia.

Risks cannot be ignored

Hugging Face's financial contribution will initially be small compared with Nvidia's existing business. Nvidia generated $96.2 billion in revenue in its latest quarter (the second quarter of fiscal 2027, ending July 26, 2026), including $89 billion from the Data Center segment alone.

Additionally, government restrictions on open-source AI models could reduce the number of models and data sets available through Hugging Face or increase the platform's compliance costs. This risk is relevant because many popular open-source models originate in China before being downloaded, modified, and tested by developers elsewhere. Nvidia says restrictions based on where models originate could materially affect both Hugging Face and its own business.

There is also considerable execution risk associated with the purchase price. Hugging Face was valued at $4.5 billion in its last disclosed funding round in 2023. Nvidia's roughly $12.9 billion deal value is nearly three times that valuation.

Despite the risks, Hugging Face can strengthen the long-term Nvidia investment thesis. While Nvidia's GPUs will continue to generate most of the revenue and profits supporting its valuation, Hugging Face can give the company a strong competitive advantage.

Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.