Nvidia Shares Retreat After $12.9B Hugging Face Deal

Nvidia agreed to acquire open-source AI platform Hugging Face for $12.9 billion. Shares pared an early 2.5% gain to trade about 0.6% higher on Thursday as investors weighed the transaction. Morningstar raised its fair value estimate for Nvidia to $310 from $280 after the company’s quarterly results.

Hugging Face provides tools and infrastructure used by developers and institutions to build, share and deploy AI models. Nvidia said it will keep the platform open for the broader AI community and, in a blog post, wrote that the companies will work to scale the service and expand access for developers and institutions worldwide.

Nvidia reported fiscal second-quarter revenue of $96 billion, up 106% year over year and above its $91 billion guidance. The company forecast October-quarter revenue of $108 billion, ahead of consensus near $105 billion. Nvidia also provided a long-range outlook calling for roughly 70% revenue growth next year, implying nearly $700 billion in revenue for fiscal 2028 and describing that outlook as supply-constrained.

Morningstar cited the revenue trajectory when raising its fair value estimate and calculated that the new valuation implied roughly 30% upside from Nvidia’s stock price near $226 at the time. The research firm highlighted margin pressures as a key concern.

Nvidia reported a 75% gross margin in the July quarter and projected declines to 74% in October, 71.5% in January and about 72.5% for fiscal 2028. Morningstar attributed part of the margin pressure to sharply higher memory prices, an important input for Nvidia’s AI systems.

The $12.9 billion purchase is Nvidia’s second-largest acquisition on record, following a roughly $20 billion purchase of assets from Groq in December and above its roughly $7 billion acquisition of Mellanox in 2019. The deal adds model development, sharing and deployment tools to Nvidia’s existing hardware, software and infrastructure offerings.

Trading on the day of the announcement was volatile, reflecting investor focus on the acquisition, execution and margin trends.