Nvidia stock wobbly after Hugging Face deal, but analysts see over 30% upside ahead

Nvidia stock gave up most of its early gains on Thursday, trading about 0.6% higher after rising as much as 2.5% at the open.

The volatile movement follows the company’s announcement that it had agreed to acquire the open-source AI platform Hugging Face for $12.9 billion.

The deal, which had been expected after The Information reported it last week, marks Nvidia’s second-largest acquisition on record and adds a widely used AI development platform to its growing portfolio.

Nvidia CEO Jensen Huang said Hugging Face would remain an open platform for the broader AI ecosystem following the acquisition.

“Together, we will scale Hugging Face’s platform, strengthen its infrastructure and expand access to AI for developers and institutions worldwide,” Huang wrote in a blog post announcing the deal.

Nvidia expands beyond chips

The acquisition underscores Nvidia’s effort to build a broader AI ecosystem around its dominant position in graphics processing units.

Nvidia has become the world’s most valuable company as demand for its GPUs has surged alongside the generative AI boom.

But the Hugging Face deal shows the company is increasingly looking to capture value beyond the hardware powering AI workloads.

Hugging Face provides tools and infrastructure used by developers and institutions to build, share and deploy AI models.

Nvidia said the platform will remain open following the transaction.

The $12.9 billion deal is Nvidia’s second-largest acquisition, behind its $20 billion purchase of assets from chipmaker Groq in December.

Before that transaction, Nvidia’s largest acquisition was its nearly $7 billion purchase of Israeli chipmaker Mellanox in 2019.

Morningstar sees AI demand lasting longer

The acquisition comes shortly after Nvidia delivered stronger-than-expected fiscal second-quarter results, with Morningstar subsequently raising its fair value estimate for the stock to $310 from $280.

The revised estimate represents an upside of around 30% from the stock's current market price of around $226.

Nvidia reported $96 billion in fiscal second-quarter revenue, up 106% year over year and above its $91 billion guidance.

The company forecast October-quarter revenue of $108 billion, also ahead of FactSet consensus of $105 billion.

Morningstar highlighted Nvidia’s outlook for fiscal 2028 as the most significant part of the earnings report.

The company expects revenue growth of 70% next year, implying nearly $700 billion in total revenue compared with Morningstar and FactSet estimates of roughly $570 billion.

Morningstar noted that Nvidia described the forecast as supply-constrained, meaning revenue could be higher if suppliers expand capacity faster than expected.

The research firm said Nvidia’s visibility into AI demand and its history of beating and raising guidance could make the 70% growth forecast conservative.

Memory costs pressure margins

The main weakness in Nvidia’s latest results was its gross-margin outlook, according to Morningstar.

Nvidia reported a 75% gross margin in the July quarter but expects that figure to fall to 74% in October, 71.5% in January and 72.5% in fiscal 2028.

Morningstar attributed the pressure to sharply higher memory prices, which are an important component of Nvidia’s AI systems.

Despite the margin pressure, Morningstar said demand for Nvidia’s AI infrastructure is likely to remain stronger for longer and maintained that the stock appeared undervalued, even after its recent gains.

The Hugging Face acquisition adds another dimension to that thesis.

Nvidia is no longer relying solely on the growth of AI accelerators; it is increasingly building an ecosystem spanning chips, infrastructure, software, and AI development tools.