Nvidia’s Hugging Face Deal Is a Hedge against Broadcom’s Custom Silicon Threat

NVIDIA Corporation (NASDAQ:NVDA) has officially committed billions on AI developer platform Hugging Face for a $12.9 billion. The deal signifies the chipmaker’s move beyond hardware and up the AI stack.

The AI chipmaker buying the open-source model hub millions of developers are already using reads differently when compared to Broadcom’s earlier forecast to double its AI chip revenue to roughly $230 billion in fiscal 2028.

Even though AVGO is facing increased competition in Google’s TPU programs, it is also gaining ground with customers such as OpenAI and Anthropic. This makes Nvidia’s recent move look more like insurance rather than opportunism.

In response to the acquisition, Needham analyst Rajvindra Gill reiterated a Buy rating on Nvidia on September 4, assigning a $300.00 price target.

“Yesterday, NVIDIA announced its agreement to buy Hugging Face for $12.930BN. Hugging Face is the open source platform for hosting open source and open weight models and datasets enabling developers to easily access ready-to-use models instead of building and training them from scratch.”

The Layer above Silicon

Nvidia’s $12.9 billion deal would give it a platform that is home to more than 18 million developers, researchers and creators.  This platform hosts more than 3 million models, 500,000 datasets, and 1 million applications. Hugging Face is Nvidia’s way of remaining central in the AI theme.

Reuters BreakingViews calls the deal Nvidia’s strategic insurance policy that helps it protect market share against custom chips built by major tech clients. Regardless of which chip trains or serves a model, Hugging Face gives Nvidia a major touchpoint with developers higher up the AI stack. That is a layer of the ecosystem that gives the AI chipmaker a degree of independence.

The bear case, however, is that even though the chip giant has just agreed to spend billions on the “Switzerland of AI,” Nvidia CEO Jensen Huang has  committed to hardware neutrality.

“Hugging Face will remain an open platform for the entire AI ecosystem. Developers will choose the models they want, the frameworks they want, the clouds and inference service providers they want, and the computing platforms they want. Nvidia Compute will not be required to build on or deploy through Hugging Face.”

This makes Nvidia both strategically and publicly pressured to keep Hugging Face open to AMD and other rivals.

Some of Nvidia’s customers already hold strong incentives to reduce their reliance on expensive GPUs that it provides, with the deal strengthening its position but not completely eliminating the custom-silicon threat.

Broadcom is Helping Create the Threat

Broadcom’s custom chips are increasingly being used by companies such as Meta, Google, and OpenAI. The company recently announced raising the forecast for its AI chip revenue to about $115 billion in the fiscal year ending October 2027, up from a prior forecast of over $100 billion. It also expects this to double to roughly $230 billion in fiscal 2028.

The bull case for Broadcom, therefore, isn’t that hyperscalers are abandoning Nvidia. Its that the company stands to benefit as customers prefer both suppliers such as AVGO offering both custom chips and networking components alongside Nvidia GPUs.

The bear case for the company is that Alphabet’s Google recently expanded its deal with Marvell. This has led to analysts pointing to AVGO facing increased competition in Google’s TPU programs. While the deal doesn’t aim to displace AVGO, it does imply that the position isn’t guaranteed either.

Another risk is how custom silicon development remains highly concentrated among select tech giants due to its enormous costs, specialized engineering talent, and massive scale requirements.

Macquarie already sees Broadcom’s Google chip share sliding from roughly 95% to 65% within two years. This is the exact risk that Nvidia’s new deal is betting that it can outlast.

What the Hedge Fund Numbers Are Saying

According to Insider Monkey’s database, 170 hedge funds held positions in Broadcom at the end of Q2, modestly down from 173 in the previous quarter. Hedge funds have a larger following in Nvidia, holding 285 positions at the end of Q2, up from 275 in the previous quarter.

Recent filings show hedge funds such as Fisher Asset Management holding around 90.94 million shares in Nvidia, up around 3%. The firm upped its stake in Broadcom by the same percentage to about 15.13 million shares.

Overall, Wall Street is yet to see whether the AI trade settles on custom chips, GPUs, or a durable mix of both. Right now, Broadcom is trying to make up for its potential losing share in Google’s TPUs with OpenAI and Anthropic’s custom silicon spend, while Nvidia is betting that even the labs running custom chips need the software layer that it has just agreed to spend billions on.

While we acknowledge the potential of NVDA as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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