Apple (APPL) has almost single-handedly redefined the consumer electronics market with innovative products, from changing the way we listen to music with the iPod to redefining the role of cell phones with the iPhone.

But don’t think this company is all fun and games. Apple continues to make inroads into the computer market and erode the market share of fellow tech icon Microsoft (MSFT). The Mac vs. PC rivalry is more than just a cute ad war.

Actually, I’m a big fan of those Mac vs. PC ads — and not just because they’re funny. It’s because I think they provide a glimpse into the corporate culture of each company. Apple is, at heart, an inventive company looking to grow by creating the next big thing. On the other hand, Microsoft is an established giant that keeps doing what it has always done well… then using the profits to purchase a smaller company’s ideas and leverage them to even bigger returns. Apple’s strategy is obviously much more glamorous and appeals to image-conscious consumers, however both of these strategies have merit.

Which of these tech powerhouses is a better investment right now? Take a look at some numbers:

Apple
Market Cap: $149.50 billion       
2Q Earnings: $1.35 per share
2Q Surprise: +15.4%   

Microsoft
Market Cap: $145.42 billion
2Q Earnings: $0.36 per share
2Q Surprise: +0.0%

Apple Thrives on Innovation

In 2004, as Apple’s iPod started to gain widespread appeal, and its iTunes store became one of the premier marketplaces for digital music, I quickly realized the potential of this company’s innovative approach to consumer electronics. I told subscribers to my Blue Chip Growth newsletter to buy this stock, and we rode it for almost four years to close out a stunning 250% profit in late 2008.

Many investors ask me if I think the stock is good investment right now. My simple answer is, “not yet.” Here’s why:

First, Apple thrives on innovation and managing its product cycles, and despite rumors about the company launching its own netbook "tablet," Apple doesn’t have any new blockbuster products on the immediate horizon.

Second, the volatility in share price caused by speculation over Steve Jobs’ health makes this stock a little too risky for my tastes. A blue chip stock with a market capitalization of almost $150 billion should be a heck of a lot more stable than AAPL.

I run intensive screening and data-mining on more than 5,000 stocks each week that focus on two key factors: a stock’s current strength and its potential for future growth. So how does AAPL stack up on these two fronts?

Strength:

Apple sure has current strength. This summer, the company’s sold over 1 million next-generation 3GS iPhones in just three days after the new product hit the shelves in June.

What’s more, the company said it sold 2.6 million Macs in the second quarter, up 4% from a year ago, as the company continues to slowly gain a bigger share of the computer market. It’s performance like this that helped Apple increase both its 2Q profits and 2Q revenue by more than 10% compared with 2008.

Growth:

The future, unfortunately, is not quite as impressive for Apple. While the latest iPhone numbers are good, smart phone sales in general have been very strong, and AAPL hardly has the market cornered now that rivals like the Palm Pre and the Blackberry are gaining appeal.

What’s more, it shipped only about 10 million iPods in the second quarter, down 7% year on year.

There are rumors that Apple may be gearing up to take on Amzon.com’s Kindle e-reader, but any investor who puts his or her money behind a rumor is taking a risky gamble. Since this company relies on a strong product cycle, without any highly-anticipated offerings on the horizon, I have to be skeptical of Apple’s future prospects.

NEXT – Microsoft Thrives on Domination