By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
Panelists agree that American Express' (AXP) share count reduction has driven significant returns, but they caution that current buybacks may not be as accretive due to rising delinquencies, potential ROE compression, and regulatory risks. The panel is divided on the sustainability of AXP's current valuation.
Risk: Rising delinquencies and potential ROE compression
Opportunity: Historical operational excellence and disciplined capital allocation
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 →
The real magic is per-share earnings growth, not just business growth.
Share buybacks quietly amplified Buffett’s returns.
Capital allocation separates good companies from great ones.
When Warren Buffett first invested in American Express (NYSE: AXP), the thesis seemed straightforward: Buy a high-quality business and let it grow over time.
Decades later, that investment has delivered roughly 40 times his original capital. Most investors credit that success to factors such as brand strength, customer loyalty, and the company's premium positioning. But there's a quieter force at work, one that often goes unnoticed.
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American Express didn't just grow. It systematically increased each shareholder's ownership over time.
It's easy to focus on how much a company grows its revenue or profit. But the Oracle of Omaha focused on something else: how much of that growth accrued to every share.
American Express has long generated high returns on equity (often 20%-30%), supported by a premium customer base and strong spending volumes. These have supported long-term revenue and profit growth.
But how the company deployed that capital is what truly amplified shareholder returns. Instead of pursuing large acquisitions, it consistently returned cash through dividend payments and share repurchases.
In particular, the latter is the secret to Buffett's massive return. Over the past decades, American Express has meaningfully reduced its share count while continuing to grow earnings. Those consistent buybacks turned a 10% initial stock ownership to 22% by 2025.
The result is that Buffett's ownership of American Express' profits has more than doubled, and that has contributed handsomely to its massive return over the decades.
Buffett has long touted that his preferred holding period is forever, and that's for good reason -- just take the American Express example for illustration. Because American Express has regularly reduced its share count, Berkshire Hathaway has been able to increase its ownership stake and collect rising dividend income, all without deploying additional capital.
In fact, Berkshire Hathaway's investment cost has fallen slightly from $1.4 billion in 1995 to $1.3 billion (presumably as the company sold some stocks during these buybacks) in 2025. Moreover, it collected $479 million in dividends in 2025, more than 30% of its investment in the stock.
In effect, American Express has been reinvesting on Berkshire Hathaway's behalf. That's a rare dynamic. Most companies either dilute shareholders or allocate capital inefficiently. American Express has largely done the opposite.
There are two simple takeaways. One, find profitable companies that consistently buy back their own shares, and own the stocks for the long term.
Two, while American Express is no longer a hidden opportunity, the company still generates strong cash flows and returns excess capital through buybacks. That means it can still deliver solid per-share earnings growth exceeding revenue growth.
Investors looking to own a proven business that can continue to grow its EPS at a decent rate should keep an eye on American Express -- and companies like it.
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American Express is an advertising partner of Motley Fool Money. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. 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
"AXP's long-term success is as much a function of disciplined capital allocation via buybacks as it is consumer spending, but this strategy is highly vulnerable to cyclical credit risk."
The article correctly highlights the 'share count reduction' engine, but it ignores the macro-sensitivity of American Express (AXP). While buybacks are a powerful lever for EPS growth, they are essentially a financial engineering tool that requires excess free cash flow. AXP’s premium model relies on high-spending, affluent consumers who are sensitive to credit cycles. If the U.S. economy faces a sustained contraction, the 'buyback machine' could stall as capital is diverted to loan loss provisions. AXP currently trades at a forward P/E of roughly 17x-18x; investors should be wary that this valuation assumes a 'soft landing' scenario where credit quality remains pristine, ignoring the potential for a sharp rise in delinquency rates.
If AXP's credit quality deteriorates, the stock's valuation will compress regardless of buybacks, making the 'automatic ownership increase' thesis irrelevant in a liquidity crunch.
"AXP's historical buyback success hinged on execution at reasonable valuations, but current 18x forward P/E and rising credit risks cap near-term upside."
American Express (AXP) exemplifies how disciplined buybacks—reducing shares ~60% since the 1990s—supercharged Berkshire's returns from a solid business (20-30% ROE, premium moat) into a 40-bagger via per-share EPS growth outpacing revenue. This 'automatic ownership increase' is real: Berkshire's stake rose from ~10% to 22% without added capital, with 2025 dividends ($479M) exceeding adjusted cost basis. But context omitted: AXP trades at 18x forward P/E (pricey vs. historical 12-15x), consumer delinquencies ticked up 10% YoY in Q1 2024 amid high rates, and fintech rivals erode volumes. Solid long-term hold, not a screaming buy.
If economic resilience holds and premium customers prove recession-proof, AXP's 12%+ EPS growth could justify re-rating to 22x P/E, extending the buyback magic for another decade.
"AXP's 40-bagger was driven by operational excellence AND multiple expansion AND buyback math—but at current valuations, the article offers no framework for assessing whether new buyers get similar returns or merely participate in a mature, fairly-priced business."
The article conflates two distinct phenomena: (1) AXP's operational excellence—genuinely impressive 20-30% ROE and disciplined capital allocation—and (2) a mathematical inevitability that applies to ANY profitable company doing buybacks. The 40-bagger return isn't primarily a secret; it's compounding ROE + multiple expansion (AXP traded at ~8x earnings in 1995, ~12-13x today) + buyback math. The real question: is AXP's *current* valuation (trading near 52-week highs, ~13x forward P/E) still attractive enough to justify new capital? The article doesn't address whether AXP's ROE remains sustainable in a higher-rate, more competitive payments environment, or whether buybacks at current prices create shareholder value or merely offset dilution.
AXP's historical buyback success doesn't guarantee future returns if (a) ROE compresses as credit normalization hits, (b) the company buys back stock at inflated valuations rather than distressed prices, or (c) competitive pressures from fintechs and digital payment platforms erode the premium positioning the article takes for granted.
"The real Buffett-like alpha at AmEx depends on sustainable earnings growth and capital efficiency, not buybacks alone—valuation and credit-cycle risks will determine whether buybacks continue to add value."
Buffett's AmEx run is a compounding story, but the piece overemphasizes buybacks as the secret engine. The enduring driver is EPS growth fueled by pricing power and spend volumes, plus prudent credit risk management. Buybacks amplify per-share gains, yet their effectiveness hinges on valuation and macro conditions. In a downturn, higher loan losses and slower buyback momentum could derail the implied automatic ownership boost. The missing context includes AmEx's cyclicality, regulatory and competitive pressures from fintechs, and whether current valuations still justify repurchases as a primary driver of returns.
Counterpoint: gains may be more about earnings growth and dividends than buybacks; if AmEx trades at rich multiples, buybacks could even destroy value when the credit cycle turns.
"AXP's buyback efficiency is secondary to the existential risk of regulatory intervention on interchange fees, which would render current ROE models obsolete."
Claude is right to question the efficacy of current buybacks, but all of you are ignoring the 'float' dynamic. AXP isn't just buying back stock; it’s capturing the spread between its cost of equity and the yield on its loan book. If AXP maintains its 30% ROE while the cost of capital stays elevated, buybacks at 18x P/E are still accretive. The real risk isn't just credit; it's the potential for regulatory caps on interchange fees, which would permanently compress ROE.
"AXP's Q1 charge-off spike undermines ROE-driven buyback accretion at current valuations."
Gemini mislabels AXP's edge as 'float'—that's insurance lingo; AXP leverages network moat and affluent cardholder spend with funding from deposits/securitizations. Crucially, buyback accretion hinges on ROE exceeding implied cost of equity (~5.5% at 18x P/E), but Q1 2024 charge-offs surged 28% YoY to 2.6%, signaling ROE compression to ~25% that erodes the math amid rising rates.
"Charge-off acceleration signals ROE compression is already underway, making current buybacks at 18x P/E value-destructive rather than accretive."
Grok's Q1 2024 charge-off data (28% YoY surge to 2.6%) is critical, but we need context: is this normalization after pandemic-era suppression, or early-cycle deterioration? If affluent cardholders are already stressed at current rates, ROE compression accelerates faster than buyback math can offset. Gemini's regulatory risk on interchange is real but secondary—credit cycle hits first. The 18x P/E assumes ROE holds; it won't.
"AXP's funding mix could become a vulnerability in stress, making buybacks less accretive than assumed and ROE compression accelerate."
Nice emphasis on ROE and buybacks, Grok, but you understate funding fragility. AXP’s earnings power hinges on a deposit/securitization funding mix that can tighten sharply in a credit crunch, raising cost of capital just as delinquencies rise. In that scenario, buybacks become less accretive and ROE compression accelerates, shrinking the perceived moat. Regulators on interchange and fintech competition are real, but funding risk could hit sooner and harder than the math suggests.
Panelists agree that American Express' (AXP) share count reduction has driven significant returns, but they caution that current buybacks may not be as accretive due to rising delinquencies, potential ROE compression, and regulatory risks. The panel is divided on the sustainability of AXP's current valuation.
Historical operational excellence and disciplined capital allocation
Rising delinquencies and potential ROE compression