We’re Gonna Need a Bigger Moat. Thoughts on NVIDIA Buying Hugging Face. Alwis Thinking About Tech

Summary: (1) NVIDIA’s announced acquisition of open source AI hub Hugging Face opens up game changing access to AI developer community and workflows; we consider buying the “Github for AI” for ~$13B and expanding NVIDIA’s tech stack and moat a bargain; (2) Snowflake’s continues to report impressive growth as key AI Lab partner and a primary cloud data warehouse but we emphasize that SNOW pricing now requires near-perfect long-term execution and long-term market conditions; (3) We observed highly elastic demand for lightweight models this week as OpenAI’s price cuts and free tiers on lightweight GPT 5.6 Luna make it the #1 model for code generation by token usage in our OpenRouter rankings. Anthropic’s heavyweight Claude Opus 5 is #1 for actual token spend; (4) Our YouGov survey data on AI usage continues to show much greater usage of AI at larger companies with higher FTE shares of software developers (finserv, IT, telco); (5) we’ll cover Anthropic’s Fable 5.1 coding and science performance improvement paired with reduced token-based costs in tomorrow’s Anthropic pre-IPO note; and Optimal’s 09/16 AI Infra Dinner in NYC is almost full, and Optimal is hosting our Luxury & Fintech Leaders Summit in NYC 10/29 please connect with your salesperson about attendance.
Charts of the Week
Figure: Top Models by Task: Each task’s leading model, ranked by share of spend on OpenRouter

Source: Optimal Advisory analysis, openrouter.ai
Figure: Top Models by Token Usage: Each task’s leading model, ranked by share of tokens on OpenRouter

Source: Optimal Advisory analysis, openrouter.ai
Figure: Card Spending data on purchases AI Labs

Source: Optimal Advisory analysis, Bloomberg Second Measure
Framework Implications
Our five frameworks: 1. Commoditized Middle of the Tech Stack. 2. Owning Endpoints, Customer Graphs, and Deep Enterprise Integrations. 3. Circular Capital. 4. Revenue Quality. 5. Supply and Technology Infrastructure Constraints.
Updating Framework 1: The commoditized Middle of the Tech Stack now includes NVIDIA as a key player following the announced acquisition of Hugging Face, the largest open source hub for AI developers.
Updating Framework 2: NVIDIA’s acquisition also enables additional and deeper integrations with enterprise developers through access to the Hugging Face Enterprise Hub and Model Gateway
Figure: Mag6 Capex vs Free Cash Flow – Most Recent Reported Quarter ($mm)

Source: Optimal Advisory analysis, Bloomberg, Company Filings
Figure: Daily Indeed Job Postings T7D Y/Y

Source: Optimal Advisory analysis, FRED, Indeed
Figure: Demographic Analysis of AI Paid Users (Employer Size and Industry Employed)
Source: Optimal Advisory analysis, YouGov
The Optimal Tech Index Performance and Valuation Snapshot
Figure: OTI (Optimal Tech Index) Annual Returns vs. Benchmarks

Source: Optimal Advisory analysis, Bloomberg
Figure: Optimal Tech Index (Log Scale)

Source: Optimal Advisory analysis, Bloomberg
Figure: Optimal Tech Equal-Weight Category Index Performance (Log Scale)

Source: Optimal Advisory analysis, Bloomberg
Figure: Optimal Tech Megacap Index Components

Source: Optimal Advisory analysis, Bloomberg
Figure: Optimal AI & Compute Infrastructure Index Components

Source: Optimal Advisory analysis, Bloomberg
Figure: Optimal Software Index Components (Public Constituents)

Source: Optimal Advisory analysis, Bloomberg