Across 2025, American Express (AXP 1.19%) stock convincingly outperformed the broader market, rising by almost 25% compared with the S&P 500 index's 16% gain. Early in the new year, however, that dynamic was flipped, with Amex stock going negative and the index bumping slightly higher.
The big change was President Donald Trump's rather-out-of-the-blue demand to set a 10% cap on the interest rates credit card issuers charge their customers. Since Amex is a massive issuer, investors became spooked about the potential damage to the company. I think this was an overreaction, and the market's sell-off makes it a bargain.
Berkshire Hathaway was a big buyer
It's no accident that Amex has been a foundational holding in the equity portfolio of Warren Buffett's Berkshire Hathaway for decades. The celebrated investor -- who stepped down from Berkshire Hathaway recently -- has always liked a moat, and he favors companies that not only post high margins year after year but also manage to grow at admirable rates.
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Amex checks all those boxes. And its Centurion Card (aka the Black Card) has been considered the ultimate credit product for many years. That, married with the company's always competitive Membership Rewards loyalty program, gives Amex a very defensible moat, even in the crowded credit card business.
Additionally, Amex distinguishes itself from card giants Mastercard and Visa by being a "closed loop" company. This means it is both the issuer of the credit denoted by its plastic and the processor of transactions made with it. Mastercard and Visa are "open loop" operators, meaning they operate only as processors.
Since Amex is the sole issuer in the trio, it is the most vulnerable to a sudden imposition of an interest rate cap.
NYSE: AXP
Key Data Points
Empty threat?
I don't feel investors should worry about this. In his pronouncement on a cap, Trump insisted it would become effective a mere 11 days later, on Jan. 20.
This didn't happen, and it's worth noting that Trump has no power to unilaterally limit credit card interest rates. This is why he's been pushing the one branch of government that can do so -- Congress.
Enshrining an interest rate ceiling in the law would score easy points for legislators in either major political party, and, sure enough, a bill has been co-sponsored by noted Senate Republicans and Democrats.
Called the "10% Credit Card Interest Rate Cap Act," it doesn't seem to have much chance of passing, given the resistance from congressional leaders and the finance-sector lobbying effort certain to ensue.
Meanwhile, Amex just keeps posting impressive numbers. Its fourth-quarter earnings report, published at the end of January, revealed year-over-year net revenue growth of 10% (to almost $19 billion) and a 13% surge in headline net income (which hit nearly $2.5 billion). American Express is a purveyor of cards people want to keep and use, and it keeps proving it can deliver the goods with meaningful growth.
I have no doubt that snapping up the stock on the current weakness is one of the best moves to make for finance sector investors. Amex's stock is definitely a buy.
