Executive Summary / Key Takeaways

• Resilient Premium Model Fuels Consistent Growth: American Express continues to demonstrate remarkable resilience, reaffirming its full-year 2025 guidance for 8-10% revenue growth and $15.00-$15.50 EPS, driven by its global premium customer base, spend- and fee-centric revenue mix, and disciplined investments.
• Technology and Product Innovation as Core Moats: AXP leverages proprietary AI for enhanced fraud detection and data processing, alongside a relentless product refresh strategy, to deepen customer engagement, attract high-value Millennial and Gen-Z cohorts, and maintain pricing power in a competitive landscape.
• Best-in-Class Credit Performance: The company's focus on affluent, creditworthy customers results in superior credit metrics, with delinquency rates for younger and low-tenure customers significantly better than industry averages, providing a strong margin of safety.
• Strategic Expansion in Key Verticals: Targeted investments in dining (Resy, Tock, Rooam) and commercial expense management (Center acquisition) are building integrated ecosystems, while international markets offer substantial underpenetrated growth opportunities.
• Capital Strength and Shareholder Returns: AXP maintains robust capital levels, evidenced by a 10.6% CET1 ratio and a 17% dividend increase, underscoring management's confidence in sustainable earnings and commitment to returning excess capital.

The Enduring Appeal of the Green Card: A Century and a Half of Reinvention

American Express Company (NYSE:AXP) stands as a testament to enduring relevance in a constantly evolving financial landscape. Founded in 1850 as a freight delivery service, AXP's journey from horse-drawn wagons to a global payments and premium lifestyle brand powered by technology is a narrative of strategic reinvention. This deep-seated history of adaptation, from travel services in the early 20th century to a card-focused payments company by the 1960s, underpins its current differentiated business model. AXP's strategic pivot to the premium card segment, a focus intensified over the past four decades, has cultivated a loyal, high-spending customer base that forms the bedrock of its financial strength.

The company's overarching strategy revolves around a "membership-focused" model, emphasizing differentiated products, services, and experiences. This is achieved through continuous investment in value propositions, expanding its global merchant network, and leveraging technology to enhance customer engagement. This long-term vision, even through economic uncertainties like the COVID-19 pandemic, has seen AXP consistently invest in its core business, contributing to higher customer retention and a resilient financial profile.

The Technological Edge: Powering Premium Experiences

At the heart of American Express's competitive advantage lies its proprietary technology, particularly its advanced use of Artificial Intelligence (AI) and machine learning. This isn't merely about efficiency; it's about enhancing the core value proposition of a premium lifestyle brand. AXP's AI capabilities are deeply embedded in its operations, from fraud detection and risk management to personalized customer service and targeted marketing.

The tangible benefits are quantifiable and significant. AXP's AI tools enable 20-30% higher efficiency in data processing and fraud detection compared to traditional methods, leading to quicker transaction approvals and reduced losses. The company's next-generation AI initiatives are targeting even more impressive gains, aiming for 40% faster processing with a 15% lower error rate. This technological prowess directly contributes to AXP's "best-in-class" credit performance, allowing for disciplined growth while maintaining low delinquency and write-off rates. For instance, the delinquency rate for its Millennial and Gen-Z customers is nearly 40% better than the industry average for older age groups, and low-tenure customer delinquency rates are 30% lower than 2019 levels. This superior risk management, underpinned by AI, translates directly into a wider margin of safety and more profitable lending.

Beyond risk, technology drives innovation. AXP is continuously upgrading its technology infrastructure, a multi-year endeavor that management views as non-negotiable for long-term strength. Recent acquisitions like Center ID Corp. (April 2025), an expense management software company, aim to create a seamless, AI-powered platform for commercial card payments, integrating with existing capabilities like Kabbage. This strategic investment in technology is a critical component of AXP's competitive moat, allowing it to offer superior services and experiences that rivals struggle to replicate, thereby reinforcing its premium market positioning and justifying its pricing power.

Financial Performance: Resilience in a Shifting Macro Landscape

American Express's financial performance in the second quarter of 2025 underscores the strength and resilience of its business model. The company reported record total revenues net of interest expense of $17.9 billion, marking a 9% year-over-year increase on both a reported and FX-adjusted basis. This growth was broad-based, with Discount revenue, the largest revenue line, increasing by 6%, driven by higher billed business. Net card fees continued their exceptional trajectory, surging 20%, reflecting high levels of new card acquisitions and successful product refreshes. This segment has seen an average annual growth of 17% since 2019, with net card fees more than doubling over this period. Net interest income also saw a healthy 12% increase, primarily due to growth in revolving loan balances and greater usage of lending features like Pay Over Time.

Despite a slight deceleration in some travel categories like airlines and lodging, overall Card Member spending reached a quarterly record, up 7% year-over-year. Goods and Services (GS) spend, accounting for over 70% of total billed business, grew 8% (7% FX-adjusted). Notably, the U.S. Consumer Services segment saw billed business grow 7%, with Millennial and Gen-Z Card Members driving significant spending momentum. International Card Services (ICS) continued to be a standout performer, with billed business growing 15% (12% FX-adjusted), reflecting strong growth across all regions outside the U.S. This segment's pretax income soared 60% in Q2 2025, highlighting its significant contribution.

From an expense perspective, Variable Customer Engagement (VCE) expenses grew slightly faster than revenues, a deliberate outcome of the mix shift towards premium products and investments in value propositions. Marketing expense increased 5%, reflecting continued investment in customer acquisition. Operating expenses, adjusted for the prior-year gain from the sale of Accertify, grew in line with revenue, demonstrating disciplined management and leveraging scale. The company has driven four points of operating leverage since 2023, with operating expenses as a percentage of revenue declining from 25% to 21%.

Competitive Positioning: A Premium Moat in a Crowded Field

The global payments industry is intensely competitive, with established networks, issuers, and acquirers vying for market share alongside a growing array of fintech innovators. American Express differentiates itself through its unique closed-loop model, premium brand, and integrated ecosystem of products and services.

Compared to network-centric players like Visa (V) and Mastercard (MA), AXP operates with a higher cost structure due to its direct lending and customer service model. While Visa and Mastercard boast superior gross and net margins (e.g., Visa's 80% gross margin vs. AXP's 82.37% TTM, but AXP's net margin of 13.64% TTM is significantly lower than Visa's 55% and Mastercard's 46%), AXP's strength lies in its ability to cultivate deep customer loyalty and drive higher spending per card member. AXP's AI-driven fraud detection and data processing offer a competitive edge in efficiency, enabling quicker market responses and potentially improving its Return on Invested Capital (ROIC).

Against other integrated issuers like Discover Financial Services (DFS) and Capital One Financial (COF), AXP's premium focus stands out. While Discover and Capital One may pursue broader market segments, including subprime lending, AXP's strategy targets affluent, high-spending customers. This focus translates into AXP's superior Return on Equity (ROE) of 36.3% in Q2 2025, significantly higher than DFS's 25% and COF's 8% (2024 annual). AXP's brand is widely perceived as the most premium, even as competitors like Chase and Capital One have made strides in brand perception in the premium space. However, AXP's market share in the U.S. fee-based consumer premium cards is around 25%, indicating substantial room for continued growth. Internationally, AXP is underpenetrated, with an average of 6% spend share across its top five markets, presenting a significant long-term growth runway.

The company's strategic acquisitions, such as Resy, Tock, and Rooam in the dining space, and Center in expense management, are designed to build comprehensive, integrated solutions that enhance the value proposition beyond mere payment processing. This ecosystem approach, coupled with its extensive airport lounge network (30 proprietary lounges and growing), creates a sticky, lifestyle-oriented brand that is difficult for competitors to replicate. The upcoming refresh of the U.S. Consumer and Business Platinum Cards in Fall 2025, described as AXP's "largest investment ever in a Card refresh," is a testament to its commitment to maintaining leadership in the premium segment by continually enriching benefits and partnering with world-class providers.

Outlook and Risks: Sustaining Momentum Amidst Headwinds

American Express is reaffirming its full-year 2025 guidance, projecting revenue growth of 8% to 10% and earnings per share between $15.00 and $15.50. This outlook is based on an assumption of a stable economy, incorporating a macroeconomic outlook with a peak weighted average unemployment rate of around 5.7% for reserve modeling purposes. Management anticipates loans and receivables growth to outpace spend, supported by revolving balances. Net card fee growth is expected to moderate in the latter half of 2025 before accelerating in 2026, driven by the Platinum card refresh.

Key strategic initiatives supporting this outlook include continued high levels of new card acquisitions (3.1 million in Q2 2025), particularly among Millennial and Gen-Z cohorts, and the ongoing product refresh strategy (35-50 products annually). The company's international expansion and deepening its dining and commercial services capabilities are also critical growth drivers.

However, AXP faces several pertinent risks. Regulatory scrutiny remains high, particularly concerning payments regulation, interchange fees, and antitrust litigation. The EU's payments legislation, for instance, could impact cobrand relationships and pricing. Increased merchant surcharging is an ongoing concern that could adversely affect Card Member experience and spending. Cybersecurity and evolving AI/ML regulations pose continuous compliance and operational challenges. While AXP's premium customer base provides a buffer against macroeconomic volatility, a significant downturn or prolonged period of high white-collar unemployment could impact spending and credit performance. The competitive landscape demands continuous innovation and investment, which could pressure margins if returns on marketing and product enhancements diminish.

Conclusion

American Express's investment thesis is rooted in its proven ability to consistently execute a premium, membership-focused strategy, underpinned by a powerful brand, a loyal customer base, and differentiated technology. The company's strong Q2 2025 results, marked by record revenues and robust card fee growth, demonstrate the enduring appeal of its value proposition. While the payments industry remains fiercely competitive, AXP's strategic investments in product refreshes, digital capabilities, and targeted acquisitions in high-growth verticals like dining and commercial expense management are designed to fortify its competitive moat.

The reaffirmation of its 2025 guidance, coupled with best-in-class credit performance and disciplined capital management, signals management's confidence in AXP's resilient business model. For investors, American Express represents a quality franchise with a clear long-term growth runway, driven by its unique position in the premium segment and its continuous innovation in technology and customer experience. The company's ability to attract and retain high-spending, creditworthy customers, particularly the growing Millennial and Gen-Z cohorts, positions it favorably for sustained profitability and shareholder value creation in the years to come.