The concept of "capital efficiency," emphasized by Warren Buffett, has recently emerged as a key criterion for interpreting the U.S. stock market, particularly in technology stocks. Capital efficiency, an indicator of how effectively assets are utilized to generate profits, is considered a key factor in assessing corporate value.
Capital efficiency, as the name suggests, is a concept that shows how efficiently the capital invested in a business is utilized to generate profits. Representative figures include return on equity (ROE), return on assets (ROA), and return on invested capital (ROIC). Buffett has long used these metrics as a benchmark for investment decisions and has consistently emphasized them to investors. The key is not simply the size of profits, but rather the return generated relative to the capital invested.
Buffett prioritized companies that generated high profits with minimal capital. A prime example is his acquisition of chocolate manufacturer See's Candies in 1972 for $25 million. At the time, the company was generating $5 million in annual profits with just $8 million in operating capital. Over the next 35 years, only $32 million in additional capital was invested, yet cumulative pre-tax profits during the same period reached approximately $1.35 billion. This is a prime example of the results achieved by Buffett's pursuit of "high-value investments."
This capital-efficiency-focused management strategy has also been a key driver of the stock price increases of US companies over the past decade. During the same period, the average ROE of companies in the S&P 500, the leading US index, exceeded 15%, while that of Korean KOSPI companies remained at around 7%. In particular, companies like Apple, which have consistently generated high profits while reducing equity capital, have actively expanded dividends and share repurchases to maximize their ROE. Indeed, Apple's ROE for fiscal year 2025 reached a staggering 171%.
However, there are signs of a shift in this trend. As the race to develop artificial intelligence (AI) intensifies, major US technology companies have begun pouring massive amounts of capital into expanding their infrastructure, including data centers. Oracle has reduced shareholder returns and significantly increased capital investment in recent years, while Meta raised funds by issuing $30 billion in corporate bonds at the end of October 2025. This is a move rarely seen in the past.
The AI industry holds promise in the long term, but as the investment burden increases, the market will inevitably take a more scrutinizing look at these companies' performance and capital efficiency. In the short term, stock prices may be driven by expectations rather than profits, but ultimately, how a company actually generates profits and how it manages its capital will likely become crucial evaluation criteria.
This trend has the potential to reshape not only future investment strategies for technology companies, but also the very criteria investors use to evaluate stocks in the global stock market. As Buffett emphasized, the preference for "capital-efficient" companies, which generate high returns with a reasonable amount of capital, may become even more pronounced, alongside growth potential.
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