The oil market continues to be a challenging place. Crude prices have remained volatile, which is forcing oil producers to be cautious with capital spending. That's having an impact on the operations of oil-field services and equipment companies like Baker Hughes, a GE Company (NYSE:BHGE) and National Oilwell Varco (NYSE:NOV). It has also caused shares of both energy companies to tumble in the past year.

While the near-term outlook for both companies remains challenging, they're making moves that they hope will eventually translate into a stock price recovery. Here's a look at the bull and bear cases for these oil-field services and equipment giants.

An offshore oil production platform at sunset.

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The bull and bear cases for Baker Hughes

Baker Hughes is evolving. The company is shifting its focus from the volatile upstream segment of the oil market toward a more balanced approach. It has made great strides in recent years, due in large part to its combination with GE's (NYSE:GE) former oil and gas business. Thanks to that move, along with other acquisitions and investments, the company reduced its exposure to the upstream sector from 75% of its revenue in 2014 to 60% last year. It aims to further moderate its reliance on that market to between 30% and 40% of its revenue by continuing to grow its presence in the midstream, downstream, and industrial/chemical sectors.

This shift is already paying dividends for Baker Hughes. During the second quarter, revenue rose 8% year over year, helping bring a return to profitability. Meanwhile, new orders jumped 9%, which should give the company the fuel to continue growing revenue. One of the highlights was a 32% surge in new orders in the turbomachinery and process solutions business, which provides equipment for LNG projects.

Aside from its exposure to the volatile upstream market, another issue with Baker Hughes is its close relationship with beleaguered industrial giant GE. While GE has reduced its stake to below 50%, it still owns a large interest in Baker Hughes, though the company intends to exit its position eventually. Those future share sales could put some temporary pressure on Baker Hughes' stock price.

$20 bills and a calculator superimposed over an oil pump.

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The bull and bear cases for National Oilwell Varco

National Oilwell Varco has also had to evolve due to the oil market's persistent challenges. It has cut costs and focused on investing in products that help oil companies improve their returns. That approach has also started paying dividends, as evidenced by the company's second-quarter results. Not only did revenue rise (1.2% year over year and 9.9% sequentially), but earnings also improved as adjusted EBITDA rocketed more than 250%. Driving that growth were the beginning stages of a recovery in the offshore drilling market.

Aside from making changes to improve the financial results of its oil-field service and equipment business, National Oilwell Varco has also been seeking out new growth opportunities. For instance, it's leveraging its offshore expertise to diversify into the wind market. It has become a leading supplier of equipment for offshore wind power installation. That business recently won a contract to build one of the world's largest offshore wind turbine installation vessels. The company also acquired Denali, a maker of fiberglass-reinforced plastic products for the petroleum, chemical, power generation, and water industries. In another move, it recently entered Europe's growing geothermal market. These steps to diversify outside of the oil and gas sector will help reduce the impact that oil price volatility has on its operations.

National Oilwell Varco, too, has made some investments to reduce its reliance on the upstream oil and gas market. However, unlike Baker Hughes, it doesn't have a clear plan to cut its exposure to that market. Because of that, future oil price volatility could have an outsize impact on its ability to grow revenue and earnings.

Verdict: A strategy shift positions Baker Hughes to outperform National Oilwell Varco

The challenges for companies providing services and equipment to the oil industry likely won't disappear anytime soon, especially given the concerns of slowing oil demand growth due to fears that the global economy is heading into a recession. Shares of both Baker Hughes and National Oilwell Varco could continue underperforming the S&P 500 in the near term.

That's why Baker Hughes has made a concerted effort to reduce its exposure to the upstream oil market. Its moves increase the likelihood that the company will outperform National Oilwell Varco once GE sheds the rest of its stake. That greater return potential is why it seems like the better bet today.