Exxon Mobil (XOM) still holds the No. 1 spot among all companies traded on U.S. exchanges, with a market cap of $397 billion. Apple holds the No.2 spot at $309 billion.
Over the last two years, IBM's shares have risen 60%, while Microsoft's have gained just 20%. The five-year trend makes Microsoft look even worse: IBM is up 110% over the period, while Microsoft is essentially flat.
What gave IBM the edge? First, enterprise computing got hot. Oracle (ORCL), one of the leaders in the industry, has posted a 140% gain in share price over the last five years. Most experts think this is because large business-to-business hardware and software companies sell products with ongoing licenses and service fees. From a revenue and earnings standpoint, these contracts are a gift that keeps on giving. The software, hardware and license model also diversifies revenue away from a single business.
IBM's revenue rose nearly 8% in the last quarter to $24.6 billion, and net income was up 10% to $2.9 billion. IBM's global technology service business revenue was up 6%. Business services operation sales rose almost 7%. But the real driver of revenue growth was its systems business -- mostly hardware sales -- which were up 18%. Tight cost control kept margins across all of its businesses high.
Microsoft's business model has become less attractive to many investors. Some, for example, can't figure out why Microsoft is in the online content portal business -- which includes its MSN property. The operation appears to have little relationship to its core operating system business, and it losses money. The same holds true for its device division, which gets most of its sales from the Xbox, another product that seems to disconnected from Microsoft's core Windows business. And, there is Bing, Microsoft's search engine, which runs well behind Google in terms of market share.
Meanwhile, Windows in under siege. Most Windows products are either PC- or server-based: They use the processing power of local hardware to make the software function. But much of the computing world has moved to cloud computing, where the processing is done by remote servers. Microsoft's core businesses are also driven by PC sales, which have been hurt by the success of smartphones and tablets. Those portable devices are most often running Apple's iOS or Google's (GOOG) Android OS, while Microsoft's mobile efforts have been stalled.
When it comes down to it, Wall Street has rejected the Microsoft business model and embraced enterprise computing as more promising.