Few companies come bigger and better known than Apple (AAPL -2.67%) and Microsoft (MSFT 0.03%). Both share a long history as rivals. Today, both have evolved beyond their personal computing origins.

While Microsoft found revitalized success with business-to-business (B2B) clientele in the cloud computing arena, Apple has extended its consumer products portfolio. These divergent strategies make for an intriguing answer to the question: Which is the better buy today? Let's examine each company to determine the answer.

A diagram that looks like a circuit board with a computer connected to servers in the middle, and data and globe icons around it

Image source: Getty Images.

Microsoft's formula for success

Let's begin with Microsoft, in honor of Bill Gates, the co-founder and face of Microsoft for most of its existence, who resigned from the company's board on March 13. An indicator of Microsoft's evolution beyond Gates' guiding hand was the March 19 news that the company's Teams collaboration software had grown by 12 million users over the previous seven days to total 44 million daily users. Certainly, the coronavirus-induced, work-from-home requirements for many companies drove the sudden surge in users, but it's worth noting that this one-week addition equals all 12 million users that competitor Slack reported in September.  

Teams' success is just one example of the company's accomplishments in transitioning to an ecosystem of cloud-based B2B products. As a result, its fiscal second quarter, ended Dec. 31, delivered a 14% year-over-year revenue increase to $36.9 billion. Even better, the company's net income grew an impressive 38% to $11.6 billion.

The heart of Microsoft's B2B cloud ecosystem is Azure, a bundle of cloud computing services that saw astounding year-over-year revenue growth of 62% in the most recent quarter. But that's not all. Microsoft's Windows and Office product suites have made successful transitions from traditional software purchased one time into cloud-based applications with recurring subscription revenue. The commercial version of Windows products and cloud services saw revenues increase 25% from the prior year in the most recent quarter. Office's cloud version for businesses, called Office 365, enjoyed a 27% jump in year-over-year revenue. Teams comes bundled into Office 365.

The B2B hits keep coming. Dynamics 365, its cloud-based customer relationship management system and competitor to Salesforce, saw a 42% year-over-year revenue increase. Microsoft's enterprise services experienced a 6% revenue jump. These products contributed to Microsoft's overall commercial cloud revenue growing 39% year-over-year.

The ecosystem strategy makes sense. Many businesses already use Microsoft's Office and Windows products. It's logical to extend into Dynamics 365 or Azure rather than use other vendors like Salesforce or Amazon.com. The strategy has allowed Microsoft to grow revenue for three consecutive years. Even in these turbulent times, Microsoft's success with its cloud-based products is likely to continue as more businesses transition to cloud services. 

Apple's approach to success

Apple's fiscal 2020 first quarter delivered record-setting results. An all-time high of $91.8 billion in quarterly revenue was a 9% increase from the same period last year. Apple's net income also reached an all-time high of $22.2 billion, nearly double Microsoft's result.

The company's growth was fueled by sales of its iPhone 11; its services business, including Apple Music; and its wearables, Home, and accessories division, which includes the Apple Watch. This last segment grew to $10.01 billion in the quarter from $7.31 billion the year prior. This represents the first time the division including wearables exceeded the company's iconic Mac division, which brought in $7.2 billion.

Now that the wearables division is steadily growing, this trend could signal Apple's evolution beyond the iPhone. Only time will tell if wearables continue to win consumers' money. So far, the trend has been noteworthy, as this table shows.

Quarter Wearables, Home, and Accessories Revenue
Q1 2020 $10 billion
Q4 2019 $6.5 billion
Q3 2019 $5.5 billion
Q2 2019 $5.1 billion

Data source: Apple. 

Which company wins?

When it comes to technology stocks, both Microsoft and Apple are great companies to own. Microsoft's advantage is that it plays in the B2B market where customers possess deep pockets. Apple, meanwhile, is just getting started with its wearables business.

If I had to choose a winner, I'd give the edge to Apple. The company is undergoing another transformation as a market leader in wearables, and its growing services division is also of note. In the wearables space, no competitor has yet proved as successful as Apple. Like it did with smartphones, Apple is positioned to be the industry leader for wearables. Apple has the long-term edge and is the better buy.