Microsoft Corporation (NASDAQ:MSFT) had one of the best stretches in its history, rising roughly 25% over three trading days after blowout earnings, including a record $450 billion single-day market cap gain. On Monday night (August 3, 2026), Palantir Technologies Inc. (NASDAQ:PLTR) launched its comeback with strong quarterly results, driving its stock up as much as 14% in after-hours trading after a tough nine-month drop of over 40% from its November peak.
Why Options Traders Bet Big on Both Stocks
Ahead of Palantir’s report, options traders piled into calls the same way they did before Microsoft’s own earnings, betting on an unusually large price move. On August 3, traders bought twice as many Palantir call options as put options, expecting a price swing of over 10%, which is much bigger than the stock’s normal move over the past year. The bet paid off as Palantir Technologies Inc. (NASDAQ:PLTR)’s revenue jumped 93%, and it raised its full-year guidance for a second time this year. CEO Alex Karp called commercial demand “otherworldly.”
This makes you question: can Palantir’s beat spark the same kind of rally that Microsoft just had, or is one strong quarter not enough to end a bear market that’s already erased 40% of the stock’s value?
Microsoft’s Bull and Bear Case
Microsoft Corporation (NASDAQ:MSFT)’s three-day, roughly 25% bounce followed a quarter that convinced investors its AI spending is finally paying off, and one options strategist, Mike Khouw, noted the stock’s “immediate binary event risk is officially behind us.” At about 22.6 times forward earnings, Microsoft now sits near the midpoint of its own 20-year valuation range, hardly an expensive multiple for a company still growing revenue in the mid-teens.
However, this jump comes after the stock heavily trailed its competitors for most of the year. Heavy AI capital spending continues company-wide, which means the debate over whether that spending truly pays off isn’t fully settled even after one strong quarter.
Palantir’s Bull and Bear Case
Revenue jumped 93% to $1.94 billion, beating the $1.80 billion analysts expected, and adjusted earnings came in at 41 cents a share versus 35 cents expected. Palantir Technologies Inc. (NASDAQ:PLTR) raised its full-year revenue outlook to as much as $8.16 billion, up from $7.65 billion previously. Its U.S. government revenue jumped 90% to $809 million. Karp told shareholders the business is “compounding at a rate and scale that we have never before witnessed,” and 22 of the 33 analysts tracking the stock rate it a “Buy.”
Still, even after Monday’s jump, Palantir remains down more than 40% from its November peak. It trades at roughly 67 times forward earnings, among the most expensive stocks in the S&P 500 and the single most expensive by price-to-sales. France’s domestic intelligence agency is dropping Palantir for a French rival, ChapsVision, and the company also faces a legal fight over a blocked London police contract.
Insider Monkey’s Hedge Fund Data
Insider Monkey’s hedge fund database shows Palantir Technologies Inc. (NASDAQ:PLTR) had 96 hedge fund holders as of Q1 2026, up from 89 the quarter before. Microsoft Corporation (NASDAQ:MSFT) had 282 holders, down from 312.
Among enterprise software and cloud peers, Oracle had 115 holders, up from 111; ServiceNow had 108, down from 118, and Snowflake had 80, down from 90. Microsoft draws by far the most hedge fund interest of the group.
Conclusion
Microsoft already proved a comeback can work when strong results back it up. Hedge funds also favor Microsoft Corporation (NASDAQ:MSFT) over Palantir.
On the other hand, Palantir just delivered the kind of quarter that could do the same, but its far steeper valuation means it still has much more to prove before its own bear market is truly over.
While we acknowledge the risk and potential of PLTR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PLTR and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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