American Express (AXP 0.16%) is a very well-positioned business. It has a very famous supporter in Warren Buffett, the legendary investor and chief executive officer of Berkshire Hathaway (BRK.A -0.51%) (BRK.B -0.24%). Before you run out to buy this stock, however, you will need to keep in mind something that Buffett was taught by his mentor, Benjamin Graham.
American Express is a millionaire-making type of business
There's little question that American Express has a great business. As a payment processor, it connects sellers with buyers as transactions occur, charging a very small fee per transaction. But add up all the transactions, and American Express has a gargantuan business. In the second quarter of 2025, this finance company generated $17.9 billion in revenue, up 9% year over year, helping to drive a 17% increase in earnings.
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One of the core strengths of American Express is its focus on wealthier customers. In the second quarter, its customers spent a record amount. That comes as the retail sector has seen increasing demand at low-price retailers, like DollarTree (DLTR -0.77%) and Walmart (WMT -0.17%), while some higher-priced competitors have struggled, notably Target (TGT 0.99%).
Essentially, customers appear to be trading down because they are worried about their finances. But American Express' strong results suggest its wealthier customers aren't the least bit concerned. That makes complete sense, however, because wealthier customers tend to be more financially resilient than those with less wealth.
From a big-picture perspective, American Express is the kind of business that could help make you a millionaire. And the fact that Warren Buffett owns it in the Berkshire Hathaway portfolio, and has for years, is a huge vote of confidence. But don't rush out to buy American Express just yet.
American Express is a great company, but Wall Street knows it
Buffett was trained by famed value investor Benjamin Graham. One of Graham's core teachings is that even a great company can be a bad investment if you pay too much for it. This is why Buffett's investment approach is to buy good companies at attractive prices. He specifically isn't willing to buy good companies for any price Wall Street attaches to them. This is the problem with buying American Express today.
The stock's price-to-sales ratio is above its five-year average, as are the price-to-earnings ratio and the price-to-book-value ratio. The stock is trading near all-time highs. It would be very difficult to describe American Express' valuation as attractive right now.
When you pay a premium to buy a stock, you have to believe that it will grow into that valuation. American Express could do that, but it seems unlikely that such growth will happen quickly enough to justify the current premium. In fact, if there is a recession, American Express will likely perform relatively well, but it will still feel the pinch from a broad pullback in buying. Wall Street will probably respond as you would expect, by selling the shares. So, the downside risk from the current lofty valuation is probably not worth taking for most investors.
Be patient with American Express
If you like American Express' business, you're not alone, noting the lofty valuation of the stock today. But don't rush out to buy it, as you risk overpaying for a great business, which will set you up for a bad investment, as Graham often explained. Instead, put this stock on your wish list, with the intention of buying it when others are selling, perhaps during a recessionary period. That way, you set yourself up as best you can to turn American Express into a millionaire maker.
