A $13 Billion Bet on Robots?

**Jon Quast** (0:02)
We're going to talk about a $13 billion bet in robotics. Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. My name is Jon Quast, I'm your host today. I'm joined by Foolish Contributors, Matt Frankel and Rachel Warren. We're going to get to a couple of questions from our mailbag today, talking about the bullish scenarios for buying a stock and also the bearish things that you need to consider. But first, I wanted to talk about this story. I think it's pretty big. Let's talk about the robot called the Micro Duck. Now, Micro Duck, if you ever imagined a furby having a child with the Pixar lamp, that's what I think this robot duck looks like. It is a Cyclops duck that walks around your house, it quacks, it sings.
What is so interesting about this is that it is made in collaboration with Hugging Face. Now, Hugging Face is a company that Nvidia is reportedly looking to acquire for about $13 billion. So perhaps let's start there. Rachel, we're going to go to you here. What is Hugging Face and why would the $5 trillion company known as Nvidia want to buy it for $13 billion?

**Rachel Warren** (1:22)
Hugging Face is essentially one of those central town squares of the AI world. It's a cloud repository where you have millions of developers and researchers that collaborate and they use this space to share, test and host these open source, open weight AI models, datasets, software libraries. And if you're not familiar with the term open source, maybe you've heard it, you're not sure what it means. It essentially just means that the underlying code is completely public. Anyone can modify it for free instead of being locked behind a proprietary wall. Now, you've got the closed source tech giants that are keeping their AI lock behind proprietary APIs. But Hugging Face, it's sort of one of those democratizing platforms in this space. It's where you're seeing a lot of the foundational innovations or the latest open source large language models live. Now, why would Nvidia want this? I mean, some of this I've already explained. This obviously is a compelling element to add to Nvidia's wheelhouse. And, you know, $13 billion is essentially a drop in the bucket for Nvidia. But it comes at a time where the likes of OpenAI and Alphabet are aggressively developing their own custom AI chips to break their dependency on Nvidia. By buying Hugging Face, Nvidia would gain control over a really vital distribution layer where the entire global developer community meets. They would also take over the team behind an open source software library known as Llama.cpp.
That would allow AI models to run locally on consumer device. So there's a lot of interesting things at play here. One final thing I'll note, the estimates vary, but I've seen analysts saying that Nvidia would be paying anywhere from 86 to 129 times current revenue for Hugging Face should this deal go through. So they are willing to pay a premium to lock in what they say to view as a very captive customer base.

**Jon Quast** (3:10)
Certainly, $13 billion is a lot of money to you and I, but to Nvidia, it can afford to pay 100 times its revenue and not really notice it at this point. But it would seem like Hugging Face is a way that Nvidia is trying to keep the AI model companies, like OpenAI for example, trying to keep them from becoming maybe too powerful, because if they become too powerful, then they start going into custom silicon and then perhaps become a stronger competitor. What do you think about that read on it? Is that what they're trying to do here? Just kind of keep the competition there from the open source to keep the frontier more gated models from becoming too powerful.

**Rachel Warren** (3:48)
Yeah, I think that's right. I think that that's one element of this for sure. I think there's a lot of reasons why this would be a smart acquisition for Nvidia. And because this is such a go-to platform and space where you have all of this open source work from developers and researchers around the world, it's a data goldmine essentially. But I think it would also give them an edge in the open source space that they currently lack. It's interesting because obviously Hugging Face is not a household name. I think it might be easy for investors to overlook this news that we're talking about today. But I do think it's actually something that should this deal go through, would be really, really important for Nvidia long term. And also locking in that ecosystem into their broader network, I think Nvidia would also have an entirely new captive customer base that can default to their hardware, their Cuda software ecosystem. There's a lot of wins that could come from Nvidia out of this.