IBM vs. Microsoft: One Has 58% Upside and Nearly 4x the Yield. The Better Buy May Surprise You.

There was a time when International Business Machines (IBM) had the same profile that Microsoft (MSFT) enjoys today: one of the world's biggest tech companies and most recognizable brands.

Today, the narrative couldn't be more different.

For investors, though, the question is much more nuanced. IBM may no longer have Microsoft's growth profile, but that doesn't automatically make MSFT the better stock - at least not at the moment.

So, if you had to choose between the two, which is the better buy right now? And why?

How IBM and Microsoft's Fortunes Diverged: A Brief History

IBM was once one of the most dominant and valuable companies in the world. And I'm not talking about being on top for a few short years here. No, IBM was the market leader in computers for decades and was, at one time, worth more than many of its closest competitors combined . When you needed an enterprise or office computer back then, IBM was the first and, in many cases, the only choice.

In 1980, IBM was preparing to enter the new and exciting market of personal computers. But to do so, it needed an operating system - something that could tell the computer's hardware what to do and provide the basic software environment for programs to run so that people could use them every day.

After a deal with one firm fell through, the tech giant finally bought an operating system named MS-DOS from a little-known startup called Microsoft.

But it was a licensing deal, not a straight-up purchase. That meant that Microsoft could sell the same operating system license to other companies.

And this would turn out to be one of the most consequential deals in both companies' histories.

Other firms and government agencies took notice of the MS-DOS deal. And Microsoft did what any business would do today and sold licenses to IBM and others. That led to an explosion of personal computer clones that offered cheaper alternatives to IBM computers with the same operating system and functionality.

In short, IBM helped create the market that would eventually undermine its dominance, while that very same deal became the springboard for Microsoft's success.