When Warren Buffett speaks, savvy investors listen -- because he's often sharing valuable investing insights that can make us even savvier investors. It's not hard to find wisdom from Mr. Buffett, either, because he has been interviewed countless times, has penned a terrific annual letter to shareholders for decades, and has answered questions for hours at the annual meetings of his company, Berkshire Hathaway (BRK.A 0.29%) (BRK.B 0.11%). (For most of the 60 years for which he has helmed Berkshire, the late Charlie Munger was his business partner and fellow wisdom dispenser.)
At the most recent annual meeting, in which Buffett announced plans to step down at the end of the year, he answered one question by revealing a kind of company he finds especially attractive.
Image source: The Motley Fool.
Here's what Buffett said
Many questions are posed to Buffett at the annual meeting -- from shareholders present and from business journalist Becky Quick, who creates a set of questions from the many that are emailed to her. Questions alternate between Quick and shareholders. Here's the relevant question:
This question [is] about the big cap technology stocks. In the 2017 annual meeting, you said ... you really don't need any money to run these companies and referred to them as ideal businesses, referring to the big tech companies -- Apple, Alphabet, Microsoft, and Amazon.com. With all of those companies now announcing massive capital investment endeavors around artificial intelligence (AI) ambitions, have you rethought the above comment just in terms of them being asset light and what you think of them as a result?
In other words, the questioner is reminding Buffett how he has long extolled companies that are capital-light instead of capital-intensive -- companies that can operate without needing regular infusions of cash. They're then pointing out how many such companies are now deploying a lot of capital to pursue AI-related goals. Here's Buffett's response:
Well, it's always better to make a lot of money without putting up anything than it is to make a lot of money by putting up a lot of money. A business that takes no capital to speak of [is] Coca-Cola (KO 1.10%): the finished product, which has gone through bottling companies, takes a lot of capital, but in terms of selling the syrup or concentrate, that doesn't take a lot of capital.
In other words, it's not Coca-Cola that bottles all that soda -- that's left to bottling companies, which do require a lot of capital. Coca-Cola itself mainly produces and supplies concentrates and syrups to its bottlers and collects revenue when the finished products are sold.
Buffett goes on to refer to capital-light businesses such as Coca-Cola as a "fabulous" kind of business. He has expressed similar sentiments before, such as at the 2015 annual meeting, when he talked about which businesses are best for inflationary periods:
The best businesses during inflation are the businesses that you buy once and then you don't have to keep making capital investments subsequently. ... Any business with heavy capital investment tends to be a poor business to be in in inflation and often it's a poor business to be in generally.
Back to the 2025 annual meeting, where Buffett went on to say:
It'll be interesting to see how much capital intensity there is now with the Magnificent 7 compared to a few years ago. Basically, Apple has not really needed any capital over the years and it's repurchased shares with a dramatic reduction. Whether that world is the same in the future or not is something yet to be seen.
The "Magnificent Seven" stocks are Apple, Amazon.com, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla. As an auto manufacturer (among other things), Tesla is fairly capital-intensive. But the other companies derive much of their revenue from capital-light operations, such as software, subscriptions, and e-commerce. Buffett acknowledges that things can change over time, so we shouldn't assume that capital-light businesses will always remain so.
Capital-intensive vs capital-light
Clearly, Buffett favors capital-light businesses, as any investor should. But he's also happy to invest in capital-intensive businesses when the payoff seems worth it. Consider, for example, that he bought the entire BNSF railroad even though railroads tend to require a lot of capital -- such as for maintaining railcars and tracks. Perhaps not surprisingly, BNSF is not the great cash cow that some may have wanted it to be.
Regardless, Buffett has built Berkshire Hathaway into an interesting mix of capital-light and capital-intensive businesses, with railroads and utilities that need regular cash infusions and other businesses that don't, such as See's Candies, International Dairy Queen with its franchises, the Business Wire press release platform, and the Berkshire Hathaway Home Services division with its thousands of real estate specialists.
As we go about our own investing, it's worth spending a little time thinking about how capital-intensive a portfolio candidate's business model is.
