AmEx Adds 20M Merchant Locations; Margin Concerns Persist

What happened

American Express announced the addition of roughly 20 million merchant locations in 2026, expanding its global acceptance network and likely supporting spending volume, engagement, and discount revenue. The move aligns with the company's continued push to broaden its footprint, but it does not directly address the more pressing issue identified in the latest DeepValue report: total expenses grew 12% in Q2 2026 versus 10% revenue growth, driven by premium-card benefits, marketing, and technology costs. While wider acceptance may help sustain billed business growth (which was 9% in Q2) and net card fee momentum (up 15%), it could also entail incremental partnership or technology costs that add to the expense base. The market reaction to such news has been muted, as investors have been focusing on profit conversion rather than volume expansion. Consequently, this development is incrementally positive for the franchise but insufficient to alter the current WAIT rating or the need for evidence of operating leverage.

Implication

The expansion of merchant acceptance is a structural positive that should support AmEx's ability to capture high-spend affluent customers and reinforce its closed-loop network advantage. However, the key question remains whether the company can convert this broader acceptance into profitable volume without a disproportionate increase in marketing, technology, or partnership costs. Until quarterly results show total expense growth decelerating to at or below revenue growth, and net card fee growth sustaining above 10% while Card Member services expense normalizes, the stock's valuation at ~19x forward EPS leaves limited margin of safety. A more attractive entry point would be below $310, where the risk/reward improves, or after two consecutive quarters of operating leverage improvement. Investors should monitor upcoming earnings for signs that the merchant location expansion is driving incremental spend efficiently and that management is raising EPS guidance, not just revenue guidance.

Thesis delta

The core thesis remains unchanged: American Express has a durable moat, but the stock is a WAIT until evidence of operating leverage emerges. The addition of 20 million merchant locations marginally strengthens the moat and supports the revenue growth narrative, but it does not address the critical swing factor of expense growth outpacing revenue. Therefore, no shift in rating or valuation parameters is warranted.