OpenAI sparked Hugging Face bids with early investment offer ahead of Nvidia's $13 billion deal

Clement Delangue, co-founder and chief executive officer of Hugging Face Inc., during the Bloomberg Technology Summit in San Francisco, California, US, on Thursday, May 9, 2024.

David Paul Morris | Bloomberg | Getty Images

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.

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

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