Is Huggingface pulling the ripcord?

Huggingface, the “Switzerland” of the AI open AI ecosystem, is looking to be acquired for $13 billion dollars, and it might not care if it’s annexed by the Axis powers.

Why now? Could it be because the big frontier AI companies are on the cusp of financial collapse? Consider: the circular financing deals, the 100 year bonds, the unrealized gains disguised as revenue, staggering future capex commitments hidden in plain sight, the ARR sleight of hand, and quickly deprecating GPU’s languishing on racks that were hoarded for compute demands that never showed up. The Big tech narrative is looking a little worse for wear!

Meanwhile, open source and open weights models hosted on “the github of AI and machine learning”, including popular models from China, represent the single biggest competitive threat to the hyperscaler business model: as Big Tech raises token prices, making CEOs weep into their coffee mugs, more and more US enterprises, startups, and entrepreneurs are turning to cheaper, more cost effective models they can host on their own machines, or inference compute they can rent more affordably through Huggingface, compared to metered, price gouging frontier model subscriptions.

Which is why Huggingface sees themselves valued at $13 billion despite achieving only $100 million in revenue, and why any AI billionaire with a functioning brain might be tempted to buy them. Everybody’s saying open source and local or on-device AI is the future, but singularity-obsessed techno-oligarchs are fully locked-in to the megalithic AI data center death spiral and desperately looking for any way to keep the cards from stacking against them.

From inside HuggingFace, it’s also possible that they want to pull the ripcord and bail out after seeing how easily their systems were compromised by models trained as cyber attack dogs and don’t want to have to deal with the extravagant expense and growing complexity of ongoing security commitments to keep their ecosystem viable for an increasing number of customers who expect to be protected. It’s also likely that they’ve been heavily subsidizing the freemium user base and the premium side of the business isn’t giving them the margins they hoped for. By now we all know that low-cost AI is nothing more than a temporary illusion.

The other reason to sell now is that Huggingface has an extremely fragile moat and they know it: there’s nothing particularly defensible about their hub site, it’s just that they were the first to build it, and since their GPU rental service flows entirely through Amazon AWS there’s no reason AWS or another hyperscaler couldn’t decide to cut out the middle man and become the unencumbered broker. So there may never be better timing than now to offer AWS or another big fish the chance to simply and cleanly acquire then cannibalize their competitor.

And that’s a twist in the plot that could lead to Big Tech coming out on top: any purchase of Huggingface by a frontier AI company could be a major blow to the open model community since it would temporarily remove the biggest threat to frontier AI hegemony and set up a potential winner who can control both sides and choose who comes out on top.

At the risk of painting a company that uses an emoji as their logo as overly virtuous or inimitable, Huggingface represents a neutral, democratizing party empowering the free distribution of AI capabilities outside of consolidated power. Without Huggingface as it exists today there’s little to challenge the dominance of AI models owned by Big Tech, and little to serve as a counterbalance to the unpinned grenade they hold against our economy.