What They Do
American Express operates a premium payments ecosystem, combining credit cards, charge cards, and payment processing services. They primarily serve affluent consumers and businesses who value exclusive benefits, rewards, and customer service over lower fees. Unlike traditional card networks, AXP makes money from three sources: merchant fees, annual card fees, and net interest income from cardholders who carry balances.
Investment Thesis
**Premium positioning driving fee growth** — Net card fees hit a record $10B in 2025 (+18% growth) for the 30th consecutive quarter of double-digit growth, with fee-paying products now 8 percentage points higher share of acquisitions**Exceptional credit quality** — Delinquency and write-off rates remain flat year-over-year and below 2019 levels, delivering "best in class" credit performance while competitors struggle**Strong profitability with disciplined reinvestment** — 34% ROE with operating expenses declining 4 points as % of revenue since 2022, while investing $5B annually in technology upgradesKey Risks
**Revenue growth deceleration ahead** — CY26 revenue expected to decline -1.7% despite strong 2025 performance, suggesting potential spending slowdown among affluent customers**Economic sensitivity of affluent customer base** — Premium cardholders may reduce discretionary spending in economic downturn, impacting both billed business and fee incomeGrowth Story
AXP delivered record $72B revenue in 2025 (+10% growth) driven by successful premium card refreshes and strong customer engagement. The company expects 9-10% revenue growth in 2026, with card fee growth accelerating to high teens by year-end. Millennials and Gen Z now represent the largest share of US consumer spending, positioning AXP well for demographic shifts toward premium experiences.
Profitability Profile
AXP maintains exceptional profitability with 83.2% gross margins and 34% ROE, demonstrating the power of their premium positioning. The company has improved operating leverage significantly, reducing expenses as a percentage of revenue by 4 points since 2022 while increasing technology investments. Strong credit quality and disciplined cost management support sustainable margin expansion.
Competitive Position
AXP occupies a unique position as both card issuer and payment network, creating a closed-loop system that generates higher margins than traditional competitors like Visa/Mastercard. Their premium brand, exclusive merchant partnerships (like Resy/Tock), and superior customer service create strong switching costs. The successful US Platinum card refresh with higher fees and no retention rate deterioration demonstrates pricing power competitors lack.
Recent Momentum
Q4 2025 showed continued strength with revenue beating estimates by 0.3% and consistent 8% billed business growth. The company's strategic pivot toward premium products is paying off, with marketing dollars successfully reallocated from cash-back to Platinum cards. New Platinum travel app drove 30% uptick in bookings, showing strong customer engagement with enhanced benefits.
What Wall Street Thinks
Analysts appear cautiously optimistic given consistent earnings beats and strong execution, but the projected revenue decline in CY26 suggests some concern about growth sustainability. The Street is likely focused on whether AXP can maintain premium positioning during potential economic softening and if fee growth can offset volume pressures.
The Bottom Line
American Express has successfully transformed into a premium lifestyle brand with exceptional profitability and credit quality, but faces the challenge of maintaining growth momentum as economic headwinds potentially impact their affluent customer base.
