American Express: Evaluating Premium Pricing and Rising Costs in a High-Service, High-Expectation Marketplace

American Express (AXP) has long been a symbol of premium financial services, catering to high-income consumers and businesses with its distinctive rewards programs and elite card offerings. However, as the company navigates a competitive landscape marked by rising operational expenses and evolving customer expectations, investors are increasingly scrutinizing whether its current valuation reflects sustainable margins. With a price-to-earnings (P/E) ratio of 23.7 and an enterprise value-to-EBITDA (EV/EBITDA) multiple of 25.75 as of November 2025, the question of margin resilience amid cost pressures becomes critical.

Financial Performance: Strong Revenue, but Rising Costs

American Express reported robust Q3 2025 results, with revenue surging 11% year-over-year to $18.4 billion and earnings per share (EPS) climbing 19% to $4.14 according to earnings data. Full-year guidance was raised, projecting revenue growth of 9%-10% and EPS of $15.20-$15.50. These figures underscore the company's ability to leverage its loyal customer base, particularly among Millennials and Gen Z, who now account for 36% of total spend. International growth also remains a bright spot, with platinum card spending outside the U.S. rising 24%.

Yet, these gains come at a cost. Operating expenses for the quarter reached $13.3 billion, a 10% increase compared to the prior year. This rise is attributed to strategic investments, such as the refreshed U.S. Consumer and Business Platinum card, which doubled card acquisitions in its first three weeks. While management anticipates these costs will be offset by revenue growth over the next two years according to management statements, the trajectory of expenses remains concerning. Annual operating expenses have grown steadily, from $56.851 billion in 2023 to $61.306 billion in 2024, with a 7.43% year-over-year increase in Q3 2025.

Valuation Multiples: A Premium with Caveats

American Express's valuation appears elevated relative to its operational trends. The company's EV/EBITDA multiple of 25.75 as calculated-calculated using an enterprise value of $392.08 billion and trailing twelve months (TTM) EBITDA of $15.226 billion-suggests investors are paying a premium for its brand strength and customer retention. However, this multiple contrasts with its estimated fair price of $141.80, significantly below the current stock price of $341.25 according to valuation analysis. Analysts have also expressed mixed views, with a consensus target price of $332.65 and a "Hold" rating according to market analysis.

The disconnect between valuation and fundamentals may stem from the company's margin dynamics. While net interest income rose 12% to $4.5 billion in Q3 2025, driven by favorable interest rate differentials, operating margins face headwinds from variable customer engagement (VCE) costs tied to product innovation according to earnings commentary. For instance, the platinum card refresh, though successful in driving demand, has increased expenses by 22% in 2021, 24% in 2022, and 10% in 2023. If these trends persist, the pace of margin expansion could slow, challenging the sustainability of the current valuation.

Analyst Perspectives: Optimism vs. Caution

Analysts remain divided on American Express's outlook. While Deutsche Bank and Evercore ISI have upgraded their price targets, to $375 and $365, respectively, others, like Wall Street Zen, have downgraded the stock to "Hold." The mixed ratings reflect a broader debate: Is the company's investment in customer experience justified, or does it risk eroding profitability?

Management's confidence in offsetting costs through revenue growth is a key factor. The CFO noted that the platinum card refresh has already driven double-digit net card fee growth for 29 consecutive quarters. However, with operating expenses projected to rise 8.49% year-over-year for the twelve months ending September 2025, the margin of error for these projections is narrowing.

Conclusion: A Tenuous Balance

American Express's current valuation appears to hinge on its ability to balance innovation with margin preservation. While its strong customer base and strategic product launches justify optimism, the persistent rise in operational expenses raises questions about long-term margin sustainability. At an EV/EBITDA of 25.75 as of the latest data, the stock trades at a premium to its historical averages and peers in the financial services sector. For investors, the key will be monitoring whether revenue growth from initiatives like the platinum card refresh can outpace cost increases. If not, the gap between the company's current price and its estimated fair value may widen further, signaling a potential misalignment between market expectations and operational realities.