Nvidia’s GPUs are integrating Palantir’s software platform.

Palantir’s stock has a premium price tag on it.

Nvidia is slated to capitalize on the massive data center buildout trend.

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Palantir (NASDAQ: PLTR) and Nvidia (NASDAQ: NVDA) are two of the biggest names in artificial intelligence (AI). Neither company is competing with the other, as Palantir is a software play while Nvidia provides accelerated computing hardware to run AI workloads. The two recently announced a partnership, and this is massive news for both companies.

For Nvidia, it integrated Palantir Ontology into its graphics processing units (GPUs). This integrated technology stack will be far more efficient and unlock new capabilities for Palantir’s customers who deploy Nvidia’s GPUs.

Time will tell how this impacts both businesses, but I’m only interested in buying one stock in this partnership.

Which one has my eye? Let’s find out.

Image source: Getty Images.

Palantir is a software business, and each year its customers must pay the subscription fee to continue running its AI-powered data analytics software. With Palantir’s software becoming increasingly more integrated into its clients’ operations, this makes the software more and more sticky each year. As a result, Palantir is likely locking in customers for the foreseeable future.

Nvidia’s computing business is a bit different. For Nvidia to continue growing, it must continue selling new GPUs each year. Right now, this isn’t a problem, as it’s releasing a new iteration about every year with performance that makes the previous years’ model look obsolete.

Eventually, we’ll reach a performance barrier and have the necessary AI computing capacity built out to operate as an AI-integrated society. When that happens, Nvidia’s sales will fall as it will only be funding incremental computing capacity buildout and replacing outdated and burnt-out computing units.

This makes Palantir’s business far more sustainable over the long run, and I’d rather own it than Nvidia. However, there’s one factor that makes me wary of Palantir’s future, and it all comes down to stock valuation.

While picking a successful company is one thing, ensuring that you pay the right price for it is another. Even the best company bought at the wrong price can turn into a disastrous investment, and that’s exactly where I see Palantir’s stock right now.