Why Warren Buffett Remains Steadfast on American Express While Trimming Apple

The Unconventional Mega-Position in Berkshire's Portfolio

When tracking Warren Buffett's investment decisions, most eyes gravitate toward the obvious heavyweights—Apple commands over a fifth of Berkshire Hathaway's equity portfolio, while the recent Alphabet stake captured headlines as a top-10 position. Yet beneath the surface lies a more intriguing tale: a payments giant that Buffett has held firm on for decades, refusing to reduce exposure despite its growing proportional significance.

American Express stands as Berkshire's second-largest equity position, a distinction that speaks volumes about Buffett's conviction. As of Q3 2024, the conglomerate held 151.6 million shares valued at approximately $50 billion. What makes this holding remarkable isn't just its size, but its longevity and steadiness—unlike the Apple stake, which Berkshire has been gradually paring down, the American Express position has remained virtually untouched for decades.

A Business Model Built on Data Advantage

The durability of Berkshire's commitment reflects the underlying strength of American Express itself. The company operates as a vertically integrated payments platform: it issues cards, operates its own network, and maintains direct merchant relationships. This unique positioning places American Express on both sides of transactions, generating rich behavioral data on where and how cardmembers spend.

This data advantage translates into tangible competitive moats. The company uses these insights to identify and target high-spending customers with precision that rivals cannot replicate. Reward programs are refined based on spending patterns, creating a virtuous cycle of engagement and retention. Competitors relying on third-party networks lack this dual-sided vantage point, making it harder for them to customize value propositions effectively.

Financial Performance Validates the Thesis

The strength of this business model crystallizes in the numbers. Throughout 2024, American Express demonstrated robust expansion: revenue climbed 9% year-over-year to $65.9 billion, while earnings per share surged 25% to $14.01. The company simultaneously achieved record card member spending, record fee revenue, and record new card acquisitions—a trifecta rarely seen in mature businesses.

The cash generation machine proved equally impressive. American Express returned $7.9 billion to shareholders via $5.9 billion in share repurchases and $2.0 billion in dividends, exemplifying the shareholder-friendly capital allocation that defines Buffett's investment thesis.

Recent quarters show the momentum accelerating rather than plateauing. Second-quarter revenue grew 9% year-over-year with earnings per share climbing 17%. By the third quarter, revenue growth accelerated to 11% with earnings per share jumping 19% year-over-year. A significant contributor was the successful refresh of consumer and business Platinum cards, which drove U.S. Platinum account acquisitions to double pre-refresh levels.

Pricing Power and Valuation Sweet Spot

The Platinum card redesign illustrates American Express's pricing elasticity. Members willingly pay an $895 annual fee for access to airport lounges, travel credits, dining credits, and apparel credits. This pricing power—the ability to raise fees while maintaining or growing customer acquisition—reflects the strength of brand moat and customer value perception.

On the valuation front, American Express presents an unusual opportunity among warren buffett's major holdings. Trading at a price-to-earnings ratio of 24, the stock sits notably below both Apple (36x) and Alphabet (30x). For traditional financial stocks, even this multiple would be considered elevated, but contextualized against American Express's double-digit revenue growth, solid credit underwriting, and aggressive shareholder returns, the valuation appears reasonable rather than stretched.

The Risks Warrant Acknowledgment

No thesis is without downside scenarios. A meaningful economic contraction could pressure card spending, push credit losses higher, and constrain the company's ability to maintain dividend and buyback growth trajectories. Additionally, competition intensifies from multiple vectors: traditional banks, buy-now-pay-later fintech disruptors, and major card networks all contest American Express's turf.

For potential investors, these risks demand respect. The stock could experience sharp corrections during weak economic cycles. A multi-year holding period and psychological preparation for volatility are prerequisites for building a meaningful position.

A Long-Term Thesis with Conviction

Despite cyclical risks, the structural advantages embedded in American Express's business model appear durable. The combination of pricing power, data advantage, capital efficiency, and shareholder discipline creates conditions for sustained outperformance. Warren Buffett's two-decade-plus commitment—refusing to trim despite rising portfolio weight—signals deep conviction in the business's staying power.

For investors with appropriate time horizons, American Express represents the type of compounder that drives long-term wealth creation, precisely the thesis that has guided Buffett's most successful positions. Whether this conviction translates into market-beating returns over the coming decade will ultimately depend on both macroeconomic conditions and the company's ability to navigate competitive pressures.