Nvidia Acquires Hugging Face After OpenAI Investment Talks Fail

Before Nvidia agreed to pay roughly $13 billion to buy open-source platform Hugging Face this month, OpenAI tried to invest $100 million into the startup, according to sources with knowledge of the matter.

Deal discussions between OpenAI began after a high-profile hack of Hugging Face in July, when AI agents from the ChatGPT creator broke out of a controlled testing environment, went rogue, and accessed the open web, said the people, who asked not to be named because the talks were confidential.

As part of a potential deal between the two companies, Hugging Face would have served as a distribution channel for OpenAI's custom chips, dubbed Jalapeño, which the company is making with Broadcom . The talks fell apart in the early stages, one source said.

Nvidia swept in to purchase Hugging Face, announcing the deal on Sept. 3, with CEO Jensen Huang writing in a blog post that, "Together, we will scale Hugging Face's platform, strengthen its infrastructure and expand access to AI for developers and institutions worldwide." It was Nvidia's second-biggest purchase ever, following the $20 billion acquisition of assets from AI chip startup Groq in December.

OpenAI's overture to Hugging Face, especially the semiconductor offer, got the attention of Huang, who has privately complained about the AI company's move into semiconductors, sources said. OpenAI is a major customer of Nvidia, and has received a $30 billion investment from the chip giant.

Nvidia, which has emerged as a major investor across the AI landscape, previously backed Hugging Face in 2023 at a $4.5 billion valuation.

While Nvidia was pursuing Hugging Face, chip rival Advanced Micro Devices was also in talks with the company, according to sources familiar with the matter who asked to remain unnamed due to confidentiality. Salesforce was also in early discussions with Hugging Face, according to one person.

The deal eventually landed back with Nvidia. Hugging Face CEO Clément Delangue, who co-founded the company in 2016, said he approached Nvidia because it was "a perfect home" for his company, adding that discussions were fairly swift.

"A few weeks later, here we are," Delangue told CNBC's "Squawk Box" on the day of the deal.

Hugging Face became a hot asset over the past year as a hub for developers to find and deploy a variety of so-called open-weight AI models. In contrast to proprietary models from the likes of OpenAI and Anthropic, open-weight alternatives are often a fraction the cost and can be downloaded, tweaked and stored on the infrastructure of choice.

Hugging Face has been expanding its own storage and infrastructure offerings.

"During the summer, I think we realized that Hugging Face and open-source AI in general was at the turning point, and that it needed more, more resources, more scale, more visibility," Huang told CNBC, in an interview alongside Delangue.

Hugging Face and Nvidia didn't respond to requests for comment. Salesforce declined to comment.