Nvidia agreed to buy Hugging Face for nearly $13 billion this week.

If that name means nothing to you, imagine a giant public library where AI developers go to find models, download them, modify them and build applications.

More than 18 million developers use the platform.

Nvidia already sells the chips powering much of the AI boom. Now it wants to own one of the places where developers decide what to build with those chips.

That is an interesting move.

As companies like Google, Amazon and Microsoft develop more of their own AI hardware, Nvidia has a reason to make itself harder to replace. Owning the developer ecosystem could give it influence that extends well beyond the GPU.

But there is a catch.

Hugging Face became valuable partly because it is open. Developers can use different models, clouds and hardware. Nvidia has promised to preserve that independence.

So the question is whether Nvidia can own the platform without making developers feel like the platform owns them.

The chip company is trying to become something bigger than a chip company.

We'll be watching what that means for the rest of the AI ecosystem - including Five Seats stalwart TSMC, which manufactures the silicon behind much of Nvidia's success.

The Five finished its week 4: -0.15%.

The portfolio finished the latest week slightly lower, while both benchmarks gained.

The more useful perspective is the full record since we bought the initial five positions on August 10.

The Five has gained about $102 on its original $10,000 model allocation.

That is not an earth-shattering return. It is a month of ownership.

But the portfolio is ahead of SPY by approximately 1.33 percentage points and QQQ by approximately 1.50 points since launch.

The important part is that we can see exactly how it got there.

Week ending September 4, 2026

After the first week’s -0.35%, The Five gained 1.71% on August 21. It then slipped 0.17% on August 28 and another 0.15% on September 4.

The portfolio has therefore moved from $10,000 to approximately $10,102.

No rebalancing. No new purchases. No retrospective changes to the opening prices.

Just five positions drifting with the market.

TSMC gained 2.73% this week, the strongest performance on the roster.

It is now up 1.93% since entry.

The more interesting story is the business underneath the stock, which we will get to in a moment.

Intuitive Surgical fell 1.58% and is now down 3.25% since we bought it.

That makes it the weakest incumbent since launch as well as one of the weaker performers this week.

It deserves attention.

It does not deserve to be fired simply because it has spent a month moving in the wrong direction.

Nike did not suddenly forget how to make shoes.

The Swoosh did not stop being one of the most recognizable logos in the world.

Michael Jordan did not disappear.

And millions of people did not collectively decide that sports were lame.

Yet Nike finished Friday around $38.40 a share.

At its 2021 peak, the stock traded near $179.

That is a decline approaching 80%.

More recently, Nike was named for removal from the S&P 100 in the index’s upcoming rebalance. It remains an S&P 500 company, but the symbolism is difficult to miss.

One of the great American growth franchises has become a turnaround.

So … what happened?

For years, Nike products were everywhere.

Foot Locker. JD Sports. Dick’s. Independent running shops. Department stores.

Those retailers did more than sell shoes. They gave Nike shelf space, customer traffic, local distribution and an enormous physical advertising network.

Then Nike became obsessed with selling directly to consumers.

The logic looked attractive.

Why let a retailer take a cut when Nike could sell the same $150 shoe through Nike.com or one of its own stores?

More direct sales meant more customer data, more control and potentially better margins.

So Nike pulled products away from wholesale partners and pushed customers toward its own ecosystem.

The spreadsheet logic was beautiful.

The real world was messier.

When Nike reduced its presence at retailers, those retailers did not leave the shelves empty.

They filled them.

Hoka got space.

On got space.

Adidas got another opportunity.

Smaller brands gained access to customers who previously might have walked into a store and encountered a wall of Nike shoes.

By the time Nike realized it still needed those partners, some of its competitors had become genuine franchises.

Nike had tried to eliminate the middleman.

Instead, it helped the middleman introduce customers to the competition.

Distribution would have been survivable if Nike had simultaneously buried everyone in great new product.

It did not.

For too long, Nike leaned on the franchises that had already won. Dunks. Air Force 1s. Jordan retros.

Classics can be enormously profitable.They can also become a crutch.

Sneaker trends move. Running technology improves. Consumers get bored. Competitors learn. And while Nike was leaning on familiar lifestyle franchises, other brands were creating excitement in performance footwear.

Hoka became a major running and lifestyle business.

On built a premium running franchise with genuine momentum.

Adidas regained relevance in important categories.

Nike did not lose because consumers stopped caring about sneakers.

Consumers kept buying sneakers.

They simply had more reasons to buy somebody else’s.

Then there is China.

Nike once treated Greater China as one of its major growth engines.

That engine is currently going backwards.

In its latest reported quarter, Greater China footwear sales fell 17% on a currency-neutral basis.

Local competitors have improved. Consumer conditions have weakened. And Nike no longer carries the same automatic advantage it once did.

This matters because a North American turnaround is not enough.

A company valued as a global growth franchise eventually needs the global part to work too.

Right now, China is a major reason investors are reluctant to pay for the old Nike.

Here is where the story becomes interesting.

Nike knows what went wrong.

Elliott Hill, who returned as CEO in 2024, has been rebuilding wholesale relationships, reorganizing around individual sports, emphasizing product innovation and clearing excess inventory.

The company is effectively trying to reverse several years of strategic decisions without damaging the brand in the process.

We are beginning to see that reversal in the numbers.

In fiscal 2026, wholesale revenue grew while Nike Direct declined.

In the fourth quarter specifically, wholesale rose 4% as reported while Direct fell 7%.

A few years ago, Nike would have celebrated Direct taking share from wholesale.

Today, the opposite is evidence that the company is repairing the marketplace it damaged.

Sometimes progress looks like admitting the old strategy was wrong.

But repairing distribution is only the first step.

Nike still has to create products customers want badly enough to buy at full price.

Nike’s most recent quarter contains a perfect example of why reading only the headline can get investors into trouble.

Gross margin jumped from 40.3% to 49.2%.

Nearly nine percentage points of improvement.

Nike fixed everything!

Not quite.

Approximately 900 basis points of that improvement came from the expected recovery of tariffs previously paid under IEEPA.

That is an unusual benefit- not evidence that the underlying shoe business suddenly became nine percentage points more profitable.

For the full fiscal year, gross margin was 42.9%, up only 20 basis points.

That is a much better indication of the work still ahead.

The turnaround is progressing.

The income statement has not yet transformed.

There is another place to check whether a footwear turnaround is working.

The companies actually selling the shoes.

In August, JD Sports cut its profit outlook after North American comparable sales fell 6.8%.

The retailer described a promotional environment, sluggish demand for hot footwear products and changing product cycles involving important partners including Nike.

That does not mean Nike is doomed.

It means the comeback has not fully reached the shelf.

The strategy may be getting healthier faster than the consumer evidence.

That is the tension inside the stock.

Now we get to the reason this story matters.

Nike earned $2.10 per share in fiscal 2026.

At approximately $38.40, the stock trades around 18 times those reported earnings.

For much of the last decade, getting Nike at that multiple would have sounded ridiculous.

But there is a catch.

The latest quarter’s earnings included approximately $0.52 per share from the tariff-recovery benefit.

Simply removing that disclosed benefit from annual earnings leaves roughly $1.58 per share.

At $38.40, that is closer to 24 times earnings.

That is not a complete normalized-earnings model. It is a mechanical adjustment for one unusual item.

But it is enough to show why “Nike is trading at 18 times earnings” does not settle the valuation question.

And this is the entire problem with turnaround investing.

The stock has fallen because earnings power has deteriorated.

If you value the company using the old earnings power, it looks cheap.

If you value it using depressed earnings, it may not look cheap at all.

The investment depends on what the business can earn after the repair.

The bull case is straightforward.

Wholesale relationships recover.

New performance products create genuine demand.

China stabilizes.

Inventory and discounting normalize.

Margins recover without unusual accounting benefits.

And the Nike brand once again produces the kind of earnings growth investors were accustomed to paying a premium for.

If that happens, today’s price could eventually look like a remarkable opportunity.

The bear case is just as important.

Nike may remain a dominant brand while becoming a slower-growing business.

The market may have permanently become more competitive.

Retailers may give competitors more shelf space than they used to.

China may never return to its old trajectory.

And Nike may have to spend more on innovation, marketing and distribution just to defend the market share it already owns.

Under that scenario, the stock’s historical valuation is not a useful destination.

It is a reminder of what investors used to believe.

Nike has scheduled its next earnings report for October 1.

That gives us a much more useful catalyst than watching the stock bounce around the high $30s.

We want to see whether wholesale momentum is continuing, whether Direct is stabilizing, whether China is improving and whether margins are recovering for reasons that can actually persist.

Most importantly, we want evidence that consumers are responding to new product.

A turnaround cannot live forever on inventory clean-up and strategy presentations.

Eventually, people have to buy the shoes.

I am much more interested in Nike around $38 than I would have been at $140.

But price alone cannot repair a business.

There are signs the machine is being rebuilt.

Wholesale is recovering.

Management understands the distribution mistake.

The brand still has enormous reach.

And nobody should confuse a terrible stock chart with a dead company.

But we still need evidence that the repair is producing durable sales growth.

We need China to stop bleeding.

We need the product pipeline to create more winners.

We need margins to improve without unusual benefits doing the heavy lifting.

And we need a valuation that offers enough upside even if the comeback takes longer than investors hope.

Nike is interesting again.

It has not earned an entry.

Not yet.

The author personally owns TSM, MA, VRTX, ISRG and PGR starting on the Monday (August 10th, 2026) following the first newsletter. No company discussed paid for inclusion. Personal trades in covered securities are restricted around publication.

The Five is a concentrated model portfolio published for general informational and educational purposes. It is not individualized investment, legal, accounting or tax advice and does not consider any reader’s objectives, financial circumstances or risk tolerance.

Investing involves risk, including the possible loss of principal. A five-stock portfolio is highly concentrated and should not be treated as a complete or appropriately diversified portfolio.

Model results may differ from real-world investor results because of taxes, currency conversion, bid-ask spreads, trading costs, execution availability and other factors. Past performance does not guarantee future results.

Portfolio transactions announced Sunday are recorded using the official Monday opening price under The Five Constitution. Performance figures must come from the official Ledger and are subject to correction when data errors or corporate actions are identified.