American Express Company (AXP): A Bull Case Theory

We came across a bullish thesis on American Express Company on Monsoon’s Substack by Monsoon Pabrai. In this article, we will summarize the bulls’ thesis on AXP. American Express Company's share was trading at $327.26 as of September 15th. AXP’s trailing and forward P/E were 22.84 and 18.52 respectively according to Yahoo Finance.

American Express (AmEx) exemplifies a durable, long-term compounder with a uniquely self-reinforcing business model that differentiates it from peers like Visa and Mastercard. Unlike the open-loop networks, AmEx operates a closed-loop system where it issues cards, processes payments, negotiates with merchants, and retains the customer relationship.

This allows the company to capture more of the economics of each transaction, charging merchants over 3% on average while recycling most of it into robust member benefits such as travel rewards, points, and concierge services. This strategy has steadily increased loyalty-driven spending, with over 70% of costs in 2025 tied to member benefits, and has helped AmEx maintain high retention rates that competitors struggle to replicate.

Historically, high merchant fees limited acceptance, but partnerships with acquirers like Stripe and Square expanded reach to 99% of U.S. merchant touchpoints, while direct enterprise relationships account for 73% of transaction volume. This dual approach ensures a network that is both broad and deep. AmEx’s model produces exceptional returns on equity, averaging 25–35% over the last 15 years, achieved through recurring merchant fee income, high switching costs, and disciplined underwriting without heavy leverage.

At roughly 22x trailing earnings, AmEx offers an attractive risk/reward profile as a mid-teens compounder. Its closed-loop system scales merchant acceptance, loyalty, and data insights organically, strengthening its moat over time. The business also displays resilience across macroeconomic cycles, benefiting from rising consumer and corporate spending and interest rate fluctuations. While risks from competition, regulatory changes, credit exposure, and limited geographic diversification exist, the internal structure of AmEx mitigates many of these, making it a robust, durable investment with high-quality earnings and long-term growth potential.

Previously we covered a bullish thesis on American Express Company (AXP) by Max Dividends and Serhio MaxDividends in May 2025, which highlighted dividend growth, high returns on equity, and the influence of younger cardholders driving spending. The company's stock price has appreciated approximately by 10.5% since our coverage. The thesis still stands as AmEx maintains loyalty and digital innovation. Monsoon Pabrai shares a similar view but emphasizes the closed-loop model and self-reinforcing business structure.

American Express Company is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 70 hedge fund portfolios held AXP at the end of the second quarter which was 75 in the previous quarter. While we acknowledge the potential of AXP as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.