American Express Posts Strong Q4 2025 Results Amid Heavy Investment, But Valuation and Risks Loom Large

What happened

American Express reported robust fourth-quarter 2025 performance, with continued strength in billed business and earnings, as highlighted in a recent bullish article. The DeepValue master report acknowledges this operational excellence, citing Amex's high-ROE franchise, durable moat, and 'best-in-class' credit metrics powered by affluent customers. However, the stock has rerated sharply, trading at approximately 24 times trailing earnings and 59% above a conservative DCF estimate, indicating a full valuation. Regulatory threats, such as potential fee caps and routing mandates, along with intense competition and volatile free cash flow, introduce significant downside risks that are not addressed in the optimistic article. Consequently, while fundamental growth persists, the margin of safety appears thin, reinforcing the report's 'WAIT' recommendation for new investors.

Implication

For investors, the strong Q4 2025 results confirm Amex's ability to grow spend and maintain credit quality, supporting its premium narrative and potential for long-term compounding. However, the stock's elevated multiples—trading 59% above DCF—leave little room for error, making it vulnerable to multiple compression if growth slows or risks materialize. Regulatory uncertainties, including potential interchange reforms and merchant pricing pressure, could erode discount revenue and profitability, challenging the durability of current earnings. Additionally, the company's heavy investments to sustain competitiveness may not translate into sufficient returns given the already rich valuation, and existing holders might benefit from holding, but new capital should await a pullback or clearer resolution of headwinds. Thus, patience is warranted to monitor credit trends, regulatory outcomes, and valuation resets before considering aggressive buying.

Thesis delta

The news of strong Q4 2025 results and ongoing investments aligns with the DeepValue report's positive view on Amex's fundamental strengths, such as spend growth and credit quality. However, it does not alter the core thesis that the stock is overvalued relative to intrinsic value, with persistent regulatory, competitive, and cyclical risks that could impair returns. Therefore, the investment stance remains unchanged: wait for a more attractive entry point or mitigating developments before upgrading to a buy.