Microsoft and Palantir Stocks Both Hit 52-Week Lows, but Only 1 Is a Buy Right Now (the Answer May Surprise You)

Over the past few years, there have been few better artificial intelligence (AI) stocks to own than Palantir Technologies (NASDAQ: PLTR). Microsoft (NASDAQ: MSFT) was also a popular pick, although its upside was limited by its size.

Still, if you had all of your money in these two stocks at the start of 2023 through 2025, you're a happy investor. But if you bought shares of each of these stocks at the start of 2026, you're quite frustrated.

For 2026, these two are down 20% (Microsoft) and 31% (Palantir) year to date. Plus, they each just hit 52-week lows. The question is, is this a real sell-off that's warranted, or is it a phenomenal buying opportunity?

I believe it's a great buying opportunity for one of these stocks, while the other could have more room to tumble. Which one is the best buy? Let's find out.

Image source: Getty Images.

Microsoft and Palantir are both going all-in on AI

Microsoft's legendary business spans many industries, but it's taking steps to ensure that all its products have an AI-first mindset. It did that with its business productivity software by rolling out Copilot, its generative AI assistant, powered by OpenAI's ChatGPT. This business has done incredibly well, with revenue rising 123% year over year to $37 billion in annual recurring revenue.

It also has one of the most popular cloud computing platforms, with Azure's revenue rising 40% in its most recent quarter. Microsoft also owns around 27% of OpenAI, so when that company eventually goes public (likely at a $1 trillion valuation or greater), Microsoft is set to for a huge payday.

Palantir is even more focused on AI, as it has been since its founding. The company's platform was originally intended solely for government clients and utilized AI for data analytics. Eventually, this software made its way to the public side and became a huge hit there as well. Palantir is nearing a 50-50 split for government and commercial revenue, and each customer remains strong.

The biggest kick-start in recent quarters has been AIP, Palantir's generative AI platform that automates workflows for users. This has become an incredibly popular tool, and it's the main reason why the company's revenue rose 85% year over year during its most recent quarter.

Both businesses are clearly doing well, so it's hard to find fault with them. However, one winner emerges when valuations are examined.

Palantir's stock is quite pricey

Both Palantir and Microsoft are highly profitable businesses growing at a healthy pace, so valuing their stocks based on the forward price-to-earnings ratio is a smart idea. A good baseline for these valuations is the S&P 500, which trades for 21.5 times forward earnings.

At 20 times forward earnings, Microsoft trades at a discount despite growing at a market-beating pace and being a strong company overall.

PLTR PE Ratio (Forward) data by YCharts

However, there's an elephant in the room: Palantir's valuation. At 85 times forward earnings, Palantir must quadruple its earnings beyond 2026's projected growth to be at the same level as the S&P 500. That's a ton of growth that may take some time to pan out, and investors may not be willing to wait that long, especially if there are other, well-priced options available like Microsoft.

Palantir is an excellent company with great growth prospects, but it's just far too expensive to own right now. Meanwhile, Microsoft looks like a timely buy, as it rarely gets this cheap.

I believe Microsoft will thrive throughout the second half of 2026, while Palantir could continue to tumble. Even in 2027, I'm still far more bullish on Microsoft than Palantir, primarily because the sky-high expectations priced into Palantir's stock make it hard to see the upside.

Keithen Drury has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft and Palantir Technologies. The Motley Fool has a disclosure policy.