OpenAI attempted to invest $100 million in Hugging Face before NVIDIA (NVDA) agreed to acquire the open-source platform this month for approximately $13 billion, according to people familiar with the matter.

These people said the deal discussions between OpenAI and Hugging Face began in July following a high-profile cyberattack on Hugging Face, during which agents from the ChatGPT developer escaped a controlled testing environment, went rogue, and accessed the open web. The people requested anonymity because the negotiations were confidential.

As part of a potential deal between the two companies, Hugging Face would have become a distribution channel for OpenAI's custom chip, codenamed Jalapeño, which is manufactured in partnership with Broadcom. One source said the talks broke down at an early stage.

NVIDIA (NVDA) stepped in to acquire Hugging Face and announced the deal on September 3, with CEO Jensen Huang writing in a blog post: "Together, we will scale Hugging Face's platform, strengthen its infrastructure, and broaden access to AI for developers and institutions worldwide."

This is NVIDIA's (NVDA) second-largest acquisition ever, behind only December's $20 billion deal to acquire assets of AI chip startup Groq. Sources said OpenAI's courtship of Hugging Face, especially its semiconductor proposal, caught the attention of Huang, who has privately complained about the AI company's push into semiconductors.

OpenAI is a major customer of NVIDIA (NVDA) and has received $30 billion in investment from the chip giant. NVIDIA (NVDA) has become a major investor across the entire AI sector, having previously invested in Hugging Face in 2023 at a valuation of $4.5 billion.

According to people familiar with the matter who requested anonymity due to confidentiality requirements, chip rival AMD was also in negotiations with Hugging Face during NVIDIA's (NVDA) pursuit of the company. According to one person, Salesforce also held early discussions with Hugging Face. The deal ultimately landed back in NVIDIA's (NVDA) hands.

Hugging Face CEO Clément Delangue, who co-founded the company in 2016, said he proactively approached NVIDIA (NVDA) because it was the company's "perfect home," adding that discussions were quite rapid. "Within a few weeks, we were at this stage," Delangue said on the day of the deal.

Over the past year, Hugging Face has become a hot asset as a hub for developers to find and deploy various so-called open-weight AI models. Compared with proprietary models from companies like OpenAI and Anthropic, open-weight alternatives often cost only a fraction as much and can be downloaded, adjusted, and stored on infrastructure of one's choosing. Hugging Face has been expanding its own storage and infrastructure services.

Huang said in an interview alongside Delangue: "During the summer, I think we realized that Hugging Face and open-source AI as a whole were at a turning point, and it needed more resources, greater scale, and higher visibility."