By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panelists generally agree that American Express (AXP) is not a bargain at its current valuation due to significant risks, particularly credit risk and potential regulatory headwinds from the Credit Card Competition Act. They await earnings and further clarity on credit quality deterioration and regulatory developments to form a more definitive stance.
Risk: Credit risk and potential regulatory caps on interchange fees that could compress merchant discount revenue.
Opportunity: None explicitly stated; some panelists mentioned AXP's premium customer base and potential to pass fee increases to cardholders as mitigating factors.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
American Express (NYSE: AXP) has stumbled out of the gate and is down by roughly 10% halfway through the year. However, that can soon change when the global payments company reports earnings on July 24. First-quarter earnings had some good signs, and the valuation has become more enticing thanks to the sell-off.
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Fundamentally, American Express is still performing well. An 11% year-over-year increase in revenue came with a 15% year-over-year boost in net income. Amex has held on to double-digit growth rates for a while, as reflected in its 13.1% compound annual growth rate (CAGR) for revenue over the past three years.
CEO Stephen J. Squeri cited "continued momentum across our premium customer base" as a primary catalyst. In an economy where high-income households do most of the spending, Amex is positioned to thrive. Its cards cater to wealthy consumers who are more resilient amid economic uncertainty.
The company is also implementing a growth strategy that has worked well. Part of that playbook has included an extended long-term partnership with the National Basketball Association (NBA) and recently becoming the official payments partner of the National Football League.
Getting in front of sports fans more often can help American Express win over new customers and retain existing ones. The fact that the company extended its NBA partnership is a testament that its current efforts are working.
Continued revenue and net income growth also comes with a cheap valuation, especially if you compare it to other companies that are known for credit cards. American Express trades at a 22 price-to-earnings ratio (P/E), which is considerably lower than Mastercard's and Visa's valuations, which each sit at 31 times earnings.
The businesses are slightly different. American Express issues cards, has a bank, and acts as a merchant acquirer. While Visa and Mastercard have their branding on many credit cards, they don't actually issue credit cards. Banks issue the cards and earn money on any interest or late fees, while Visa or Mastercard act as the payment network. This setup results in Visa and Mastercard having higher profit margins than American Express.
Although these differences exist, the gap should be a little narrower. Visa and Mastercard have three-year revenue CAGRs of 10.9% and 13.9%, respectively. American Express' 13.1% CAGR over that stretch sits firmly in the middle.
Although American Express may not wind up with a 31 P/E, it can experience expansion of its multiple and see marginal gains due to a rising P/E. Second-quarter earnings may serve as a catalyst to reignite the financial stock and help it out of its slump.
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American Express is an advertising partner of Motley Fool Money. Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Express, Mastercard, and Visa. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"The valuation discount against Visa and Mastercard is justified by AXP's inherent credit risk and capital-intensive balance sheet, not just a market oversight."
The article's valuation argument is structurally flawed. Comparing AXP's 22x P/E to Visa and Mastercard's 31x ignores the fundamental difference in business models. AXP is a lender; it carries significant credit risk and balance sheet volatility that the payment rails (V/MA) simply don't have. While AXP's premium customer base is a moat, it is not immune to a credit cycle downturn. If unemployment ticks up, AXP's provision for credit losses will erode net income far faster than it would for a pure-play processor. I see AXP as a high-quality cyclical play, but the 'bargain' label is misleading until we see how their loan book performs under sustained high interest rates.
If AXP successfully pivots to a high-margin digital lifestyle brand through its sports partnerships, it could command a premium multiple closer to fintech peers, making the current 22x P/E a genuine entry point.
"N/A"
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"A 9-point P/E discount to Visa/Mastercard is not automatically cheap if AXP's credit costs and regulatory headwinds justify the gap."
AXP's 22x P/E versus Visa/Mastercard's 31x looks cheap until you examine the denominator. AXP's net income grew 15% YoY, but the article doesn't disclose Q1 net margin trends or loan loss provisions—critical for a company that issues credit. The NFL partnership is marketing theater; it won't move the needle on a $200B+ market cap. The real question: is AXP's lower multiple justified by structural headwinds (higher credit risk, lower margins, regulatory pressure on interchange fees) rather than being a valuation gift? The July 24 earnings will matter only if management guides to sustained 15%+ net income growth AND clarifies credit quality deterioration isn't hiding in the numbers.
AXP's cardholders being 'resilient' actually masks rising delinquencies in a slowing economy—premium customers are first to cut discretionary spend when rates stay high, and the article provides zero data on charge-offs or reserve adequacy.
"Valuation alone cannot compensate for macro and credit-cycle risks that could compress AmEx's earnings and its multiple."
American Express looks moderately buyable on headline growth and a cheaper multiple vs Visa/MA, but the article omits real risks. AmEx earns via a mix of card fees, interest income, and merchant discounts; that mix is sensitive to credit quality, rate levels, and travel recovery. A slowing consumer, higher charge-offs in a downturn, or a stall in premium-card enrollments could sap both revenue growth and margins even if top-line stays resilient. Partnerships help brand but don’t guarantee cash flow. Valuation may already reflect much of the rebound in travel, and multiple expansion hinges on earnings confidence rather than a structural moat alone.
The 'premium moat' could prove shallower than advertised as fintechs and BNPL steal share, while rising credit costs and a weaker travel cycle could keep AmEx’s earnings and multiple under pressure.
"The Credit Card Competition Act poses a greater threat to AXP's margin structure than cyclical credit losses."
Gemini and Claude are fixated on credit risk, but you're missing the regulatory elephant: the Credit Card Competition Act. If interchange fees are capped—a bipartisan priority—AXP’s discount revenue model faces a structural haircut that V/MA can partially offset through volume. AXP is not just a lender; it is a merchant-fee-dependent ecosystem. If that margin compression hits, the 22x multiple isn't a discount; it's a value trap waiting for a legislative catalyst to break the business model.
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"Interchange caps are a real headwind, but AXP's hybrid model gives it pricing power that pure processors lack—the credit book is a hedge, not just a liability."
Gemini's Credit Card Competition Act point is the sharpest risk here—and it's barely priced in. But Gemini conflates two things: interchange caps hurt AXP's merchant discount revenue, yes. However, AXP can pass fee increases to cardholders or tighten rewards; V/MA can't. AXP's lending book actually becomes MORE valuable if interchange compresses, since interest income becomes the margin floor. The real trap isn't legislative; it's if credit losses spike before AXP reprices cards upward.
"Regulatory risk is real but not the dominant driver; near-term earnings hinge on credit quality and underwriting, not primarily on interchange caps."
The 'Credit Card Competition Act' risk is real but not the surest headwind you imply. Caps on interchange would compress AmEx's merchant-discount revenue, yes, but the path to impact is uncertain: regulation could be partial, delayed, or offset by price increases and tighter rewards. The bigger near-term vulnerability remains the credit cycle: rising delinquencies and loan losses would hit earnings even if merchant margins hold. Valuation should hinge on underwriting, not just regulatory flux.
The panelists generally agree that American Express (AXP) is not a bargain at its current valuation due to significant risks, particularly credit risk and potential regulatory headwinds from the Credit Card Competition Act. They await earnings and further clarity on credit quality deterioration and regulatory developments to form a more definitive stance.
None explicitly stated; some panelists mentioned AXP's premium customer base and potential to pass fee increases to cardholders as mitigating factors.
Credit risk and potential regulatory caps on interchange fees that could compress merchant discount revenue.