American Express: Buffett's Top Non-Tech Bet
Key Points
- American Express is Warren Buffett's second largest equity holding in Berkshire Hathaway, valued at about $50 billion and representing nearly 20% of Berkshire's stock portfolio.
- The company has demonstrated consistent double-digit earnings per share growth, with 2024 EPS rising 25% to $14.01 and revenue increasing 9% to $65.9 billion.
- Recent quarters show accelerating momentum, including an 11% revenue growth and 19% EPS increase in Q3 2025, driven in part by a successful refresh of its U.S. Platinum cards.
- American Express maintains a strong competitive position with advantaged economics, robust cash returns to shareholders, and a valuation more attractive than Berkshire's other major holdings like Apple and Alphabet.
Berkshire Hathaway's Strategic Investment in American Express
American Express stands as Warren Buffett's second largest equity investment within Berkshire Hathaway, trailing only Apple in portfolio size. As of the end of the third quarter of 2025, Berkshire owned approximately 151.6 million shares of American Express, valued near $50 billion. This stake accounts for close to one-fifth of Berkshire's equity portfolio, underscoring the company's significance in Buffett's investment strategy. Unlike Berkshire's Apple position, which has been trimmed over time, the American Express holding has remained stable for decades, reflecting Buffett's enduring confidence in the company's business model and long-term prospects. This stability highlights American Express as a core holding that embodies Buffett's investment philosophy centered on durable franchises with strong economic moats.
American Express's Business Model and Competitive Advantages
American Express operates as a global payments company that issues credit and charge cards, manages its own payment network, and engages directly with merchants. This dual-sided involvement in transactions allows the company to collect rich data on card member spending patterns, enabling targeted marketing and refined rewards programs that competitors find difficult to replicate. The company's ability to attract and retain high-spending customers is a key competitive advantage. Its business model generates substantial fee revenue from membership fees and transaction processing, contributing to robust margins. The company's pricing power is exemplified by its U.S. Platinum card, which commands an annual fee of $895, offering cardholders access to premium benefits such as airport lounges and various travel and lifestyle credits. This pricing strength reflects the brand's premium positioning and customer loyalty.
Financial Performance and Growth Momentum
American Express has demonstrated consistent financial growth, with 2024 marking a particularly strong year. Revenue increased by 9% year over year to $65.9 billion, while earnings per share surged 25% to $14.01. The company also reported record card member spending, record fee revenue from membership fees, and record new card acquisitions during the year. This growth trajectory has continued into 2025, with second-quarter revenue rising 9% year over year and earnings per share increasing 17%. The third quarter saw an acceleration in revenue growth to 11% and a 19% increase in earnings per share. A significant contributor to this momentum was the successful refresh of American Express's consumer and business Platinum cards in the U.S., which led to a doubling of new U.S. Platinum account acquisitions compared to pre-refresh levels. CEO Stephen Squeri highlighted that initial customer demand and engagement exceeded expectations, underscoring the effectiveness of the product enhancements.
Capital Returns and Valuation Compared to Other Buffett Holdings
American Express has a strong track record of returning capital to shareholders through dividends and share repurchases. In 2024, the company returned $7.9 billion to shareholders, comprising $5.9 billion in share buybacks and $2.0 billion in dividends. This shareholder-friendly approach aligns with Buffett's preference for companies that generate real cash flow and reward owners. From a valuation perspective, American Express trades at a price-to-earnings ratio of approximately 24, which is lower than Berkshire's other major holdings such as Apple and Alphabet, which have P/E ratios of 36 and 30 respectively. While American Express's valuation is higher than many traditional financial stocks, it is justified by its consistent double-digit revenue growth, strong credit performance, and robust capital returns. The company’s gross margin stands at about 61%, and it offers a dividend yield near 0.9%, reflecting a balance between growth and income.
Risks and Competitive Challenges
Despite its strengths, American Express faces several risks that could impact its future performance. A significant economic downturn or recession could reduce card member spending and increase credit losses, which would negatively affect earnings and constrain the company's ability to sustain its pace of capital returns. Additionally, the competitive landscape remains intense, with pressure from traditional banks, buy-now-pay-later providers, and major card networks. These competitors challenge American Express's market share and pricing power. However, the company's unique business model, premium brand, and data-driven customer targeting provide it with durable advantages that may help mitigate these risks over time.
Conclusion: A Long-Term Buffett Favorite
American Express exemplifies the core attributes Warren Buffett seeks in his investments: a durable and advantaged business model, consistent growth, strong cash flow generation, and shareholder-friendly capital allocation. Its stable and significant position within Berkshire Hathaway's portfolio, combined with recent robust financial performance and successful product innovations, reinforce its status as a top non-technology holding. While economic and competitive risks exist, the company's demonstrated resilience and strategic positioning suggest it remains an attractive long-term investment. Investors considering American Express should be prepared for potential volatility but may find that, over a decade, the stock could deliver substantial returns consistent with Buffett's historical success.
Key Takeaways
- American Express is a cornerstone of Berkshire Hathaway's portfolio, reflecting Warren Buffett's confidence in its durable business model and growth prospects.
- The company has shown strong recent financial performance, including double-digit earnings growth and successful product refreshes driving customer acquisition.
- American Express offers a compelling valuation relative to other major Berkshire holdings, supported by robust capital returns and competitive advantages.
References
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