A PowerShell script alternative to Compare-Object for comparing text files. This should be considered a proof-of-concept.

Compare-File.ps1

#requires -version 7.2
<#
this is a variation of what you could do comparing text files
using Compare-Object. The only difference really is how this
script formats the output.

This should be considered a PROOF-OF-CONCEPT

#>

Param(
    [Parameter(
        Position = 0,
        Mandatory,
        HelpMessage = 'Reference file to compare against'
        )]
    [ValidateScript({ Test-Path $_ }, ErrorMessage = 'File {0} cannot be found.')]
    [Alias("rf")]
    [string]$ReferenceFile,
    [Parameter(
        Position = 1,
        Mandatory,
        HelpMessage = 'The Difference file to compare'
        )]
    [ValidateScript({ Test-Path $_ }, ErrorMessage = 'File {0} cannot be found.')]
    [Alias("df")]
    [string]$DifferenceFile,
    [Parameter(HelpMessage = 'Use a case-sensitive comparison')]
    [Alias("cs")]
    [Switch]$CaseSensitive
)

#a private helper function to display the differences using an ANSI sequence
Function HighlightDiff {
    Param(
        [string]$a,
        [string]$b,
        [switch]$CaseSensitive
    )
    #write-Host "Comparing $a to $b" -ForegroundColor Magenta
    [regex]$rx = '\b\S+\b'
    $aWords = $rx.Matches($a).Value
    $bWords = $rx.Matches($b).Value
    if ($aWords -AND $bWords) {
        $differentWords = Compare-Object $aWords $bWords -CaseSensitive:$CaseSensitive |
        Where-Object SideIndicator -EQ '=>' |
        Select-Object -ExpandProperty InputObject

        # Highlight different words in $b
        $output = $b
        foreach ($word in $differentWords) {
            $output = $output -replace "\b$word\b", "`e[38;5;213m$word`e[0m"
        }
        $output
    }
}

$ref = [System.Collections.Generic.List[string]](Get-Content $ReferenceFile)
$diff = [System.Collections.Generic.List[string]](Get-Content $DifferenceFile)

for ($i = 0; $i -le $ref.count; $i++) {
    if ($CaseSensitive) {
        $test = $diff[$i] -cne $ref[$i]
    }
    else {
        $test = $diff[$i] -ne $ref[$i]
    }
    if ($test) {
        [PSCustomObject]@{
            PSTypeName = 'FileComparison'
            Line         = $i + 1
            Ref          = $ref[$i]
            Comparison   = '=>'
            Diff         = HighlightDiff -a $ref[$i] -b $diff[$i] -CaseSensitive:$CaseSensitive
        }
    }
}
if ($diff.count -gt $ref.count) {
    #write-host "get extra lines from diff file" -ForegroundColor cyan
    for ($i = $ref.count+1; $i -le $diff.count; $i++) {
        [PSCustomObject]@{
            PSTypeName = 'FileComparison'
            Line         = $i + 1
            Ref          = $Null
            Comparison   = '=>'
            Diff         = $diff[$i]
        }
    }
}
elseif ($ref.count -gt $diff.count) {
    #write-host "get extra lines from ref file" -ForegroundColor green
    for ($i = $diff.count+1; $i -le $ref.count; $i++) {
        [PSCustomObject]@{
            PSTypeName = 'FileComparison'
            Line         = $i + 1
            Ref          = $ref[$i]
            Comparison   = '<='
            Diff         = $Null
        }
    }
}

The difference is highlighted using an ANSI escape sequence.