American Express: Buffett’s Second‑Largest Holding – Is It Still a Sound Buy at Current Levels?

Key Points

• American Express is Berkshire Hathaway’s second‑largest equity holding after Apple.
• Cardholder spending increased 10% in the first quarter, led by Millennials and Generation Z.
• Despite a higher valuation, the company’s business model continues to deliver solid growth.

When Warren Buffett stepped down as chief executive of Berkshire Hathaway at the start of this year, he returned to the role of chairman and left behind a portfolio dominated by a few major bets. The largest is Apple. The second is Americanmargin (NYSE:AXP), which now represents about 17% of Berkshire’s equity holdings and stands as Davies long‑held stock.

American Express has delivered substantial shareholder value, more than doubling its share price over the past five years. As of this writing it trades near $350, slightly below the December record high of $382. The question, therefore, is whether the current price still offers a margin of safety or if the valuation has reached its ceiling.

A Premium Model That Keeps Working

American Express operates a closed‑loop network, issuing cards, handling all transactions, and extending credit to many of its customers. It also collects an annual fee from members and earns a share of their spending. This spend‑centric model is supported by affluent cardholders who pay high fees and clear balances, a customer base that remains resilient in a softer economy. Annual fees recur and often rise when cards are refreshed, creating a high‑margin revenue stream that expands as the member base grows.

First‑quarter 2026 results confirm the formula’s continued effectiveness. Revenue grew 11% year over year to roughly $18.9 billion, and earnings per share climbed 18%. Billed business – the total amount members charged on their cards – rose 10%, a strong pace for a company of this scale.

Millennial and Gen Z members are now American Express’s fastest‑growing segment, with more than 70% of new accounts worldwide subscribed to fee‑paying products. This shift challenges the old perception of the brand as an older‑customer staple and opens up years, even decades, of prime spending ahead. “In our U.S. Platinum portfolio we see accelerated spend growth following the refresh while maintaining high retention rates after the fee increases,” said Chairman and CEO Stephen Squeri on the company’s Q1 earnings call.

Credit quality remains robust. The net write‑off rate on U.S. consumer card balances was about 1.9% in the quarter, and呀 laundry 30‑day past‑due balances remained near 1.3%, both levels lower than pre‑pandemic and flat year over year. These figures suggest little sign of borrower distress at this point in the economic cycle.

The Price of a Great Business

American Express no longer trades as a bargain. Using current market price and last year’s earnings, the stock is priced at a price‑to‑earnings ratio of roughly 22. With management’s guidance for full‑year earnings per share of $17.30 to $17.90, the forward P/E sits around 20.

These multiples are well above the low‑to‑mid‑teens range the company carried for much of the past decade, when it was viewed more as a value stock than a premium franchise. Investors are paying for quality, not a discount.

Management projects 15% earnings growth for the year, backed by ongoing share buybacks and a dividend yield of about 1.1%. A mid‑teen earnings compounder can preserve a 20× multiple over time even if the multiple never expands further.

In this context, the easy money from a cheap‑stock re‑rating has largely been realized. Future returns hinge on the今年 one’s operating performance: more spending, a growing fee‑paying customer base, and low loan losses.

Second‑quarter results, due later this month, will test whether the trend persists. Although I do not expect a return to the strong five‑year run, American Express remains a reasonable investment for patient investors seeking a high‑quality, compounding business. The days when it traded at a bargain are probably past.

Should You Buy Stock in American Express Right Now?

For investors targeting a high‑quality, fee‑based card network with steady growth and disciplined credit underwriting, American Express presents a realistic valuation for long‑term holding. While it no longer trades as a discount stock, its robust model and strong financial fundamentals support its place as a solid, patient‑investment option.

Source link