Nvidia is buying its way out of being just a chip company

And we start this morning with news that is breaking, although it was already reported upon. Um, and it's a new deal for Nvidia. And this is a little bit of a different kind of a deal for Nvidia. It's buying Hugging Face for $1 13 billion, which is an openweight uh platform. A lot of Nvidia's investments have been along the sort of supply chain, right? That's right. Things that supply it, things it supplies. Yes. It has invested in the frontier models also, but it hasn't bought them. Right. So this is the first thing that I'm aware of that is bought outright that is not sort of the picks and shovels. Is that is that right Barb? I know you're an Nvidia investor, aren't you? >> Oh yeah. Yeah. For a long time. >> Yeah. So what do you think of this? >> I think it's a big important strategic move because they are positioning themselves to be much more of an AI platform rather than just a supplier of chips. I mean right now chip supply as we know our demand is huge you know but they are positioning themselves for the day when that will slow down which still looks like it's far in the future but that will happen at some point. Hugging face is an open platform. It's a marketplace for developers and so they are going to have all the developers that hopefully then they're not going to tell them what to do but there will obviously be Nvidia chips that can be incorporated much more easily into this. So I think it's it's a great move and 13 billion given their c free cash flow which this year for the calendar year is projected about 200 billion is not a big bite and of course you're talking about all the other financing they're doing and there's this whole con you know worries about circular financing which right now is maybe 11 to 15% of their total free cash flow being bits being spent. But that probably works very well because the demand at this moment is insatiable. And when you're hearing all the reports from other companies up and down the food chain, this looks like it continues well into and through 28. >> So I think, you know, but back to that, I think this is just a great strategic move for them, position themselves to be, you know, an important and relevant player for a long time to come. >> Yeah. Well, to your point, Barbara, we saw some of this language out of Jensen on the call a few last week, I believe it was. Basically, we want to be the platform, the kind of ground floor for AI. We want everything to run on our systems. I don't want to necessarily take the Ed Catron position and the hyperbear position, but the worry it always catalyzes for me, and I had the same thought when I was listening to the call was, do we risk getting overly dependent on one company, one supplier for what is kind of the next railroad buildout, right? Do does that does that concentration risk worry you at all? Well, you know, the the risk is that does worry investors is that a lot of companies are developing their own chips, you know, that with, you know, with Google, you know, and others are doing that. And I think that's one of the things Nvidia is positioning themselves for because again, right now there's just not enough chips to go around. And that's going to be true for a while. Well, and and this deal actually is almost is more diversification. >> That's right. That's right. That's fair. That's fair. And I it's very interesting like if you read the release here and what Jensen has to say it's it's very clear that he is saying I support open platforms and this is the reason that we're doing this. So even as Nvidia is very connected to open AI and anthropic this is a little bit of a diversification in some ways I feel like away from that >> it makes sense on a number of levels. I think it is complimentary to what they're doing. I think it adds a lot of value to their overall ecosystem and what they're trying to to build at this point in time. You look at Hugging Face, it's it's kind of, you know, this massive open-source platform out there where you've got, you know, 18 million or so users on the platform building some great stuff. And what you've got with Nvidia here is over the last couple years, they've been a lot more than a hardware company, right? Um it's not just them selling GPUs or even at this point in time the entire rack. it's what they've done on the software side of things from CUDA all the way up to um creating some great tools and capabilities for developers um out there as well. And now Hugging Face I think kind of fits in with all of that. Um they when you think about what just uh Nvidia has been talking about over the last couple of weeks, they they're a huge proponent of this open-source uh platform and ecosystem and Hugging Face obviously uh fits into all of that. So I think what you have here and Nvidia has been a an investor in hugging face but at this point in time as long as this deal goes through and that's still an if because they do have to go through some regulatory challenges. If you think about some big tech companies out there or essentially all big tech companies out there they've essentially held off on making any type of direct acquisitions. Most of the acquisitions have been aqua hires and what have you over the last couple years because of the the backlash that we've seen from a regulatory landscape. So, we we're going to still have to worry about that. But, if the deal goes through, then you're talking about a company like Nvidia being able to really push a ton of resources and investment dollars into hugging face and and help build, I think, just that ne next trajectory of um the AI opportunities ahead. >> You know, it's funny as you've been talking as you were talking about Jensen in recent weeks really ramping up his commentary about open source, right? Yeah. Um, you know, I guess it's a little chicken and egg like he must have already been talking face, right? So, >> yeah. Absolutely. Absolutely. >> This way, this way then it's like, oh, open source is great and by the way, here's this thing that we're buying that is that is open source. So, walk me through how this ends up being accreative to Nvidia. I mean, I would imagine Hugging Face loses money. I don't know directly the financials, but so, so how does this end up making money for Nvidia? Yeah, I think it's less than less about the financials at least today over the next even 12 18 24 months and I think it's more along the along the lines of building that AI ecosystem and trying to develop more and more capabilities and um technology out there for the AI ecosystem um for a physical AI world to to really continue to come come to fruition, build it out and um you know when you think about what Nvidia has been really tked to do here over the last couple of years and I'd also say over the next 5 to 10 years, it has a lot more to do again with what they're doing on the hardware side and it's building the capabilities, the tools out there for everyone um to adopt AI. And obviously as the AI ecosystem grows, it ultimately translates to to greater adoption um greater appetite and um demand for what what they're building on the hardware side of things. So, um it's just going to be a natural evolution and build of that ecosystem that will ultimately um continue to to create an appetite for what they're doing all across um the hardware and software stack. >> What's the risk to closed models from open ones like hugging face? >> I almost kind of think about, you know, what we've seen on on the smartphone side of things where you've kind of got this closed end platform in Apple's iOS business and then what Google does with Android. And you think about what since the beginning of time across the the tech ecosystem there's been a place for closed open platforms whether it be with the frontier labs whether it be um you know tools being uh developed beneath that layer or even the actual hardware and chips that are being designed with you know Nvidia itself being in many respects a closed end platform with their GPUs um versus maybe an AMD that's open source. So as you kind of look across the entire stack, whether and whether we're looking at different industries as well, you've got a a need a place in the world for both open and source platforms, but ultimately we're big believers of the open- source platform like Nvidia because um ultimately it does drive um adoption. It does drive um you know greater innovation in many respects, but likewise um there's also a need for these these close up and platforms. >> It's a nice coincidence that the hugging face deal happened today. We just happen to be talking to Angelo about it because it's in one of your value strategies. So I know people kind of say all the time like Nvidia is very attractively valued right now, but you say it's attractively valued enough that it even belongs in a value stock kind of basket, right? >> So we have a fund WTV. It's our US value fund. It's an active strategy, but it still has a quantitative model focused on shareholder returns as the core. It's our we put as our largest holding. Um so it was a statement that you know it's now a below market multiple or right around the market multiple but growing 70 to 100% a year >> which is not a typical value stock profile right >> it's a perfect value stock in my view so like it's it's interesting because you get into the nuances we build indexes we build strategies I look at something like one of the major value benchmarks has Tesla as a top 10 holding and I say now that is not a value stock like that is a now there's excitement and today you've got The robo tax is in Austin. It's a bet on humanoids and the future of physical AI, which we're huge believers in, but its valuation at 170 PE is definitely not a value stock. It's just had a growth profile that slowed it down so that some value index have included it. But Nvidia, Meta, these are two stocks that we think are real tech leaders. Um and also but have valuations that are below market multiple with good growth profiles.