American Express: A Long-Term Winner with Millennial and Gen-Z Upside

American Express (AXP) has positioned itself as a strategic beneficiary of the growing financial influence of Millennials and Gen Z, two generations that are reshaping consumer spending habits. While younger customers currently account for only 80% of the spending power of older demographics, their 12% year-over-year spending growth in 2024—outpacing Gen X’s 4% and flat Baby Boomer figures—signals a compelling long-term opportunity. Backed by disciplined credit behavior, premium product adoption, and targeted marketing investments, American Express is primed to capitalize on this demographic shift, even as it navigates macroeconomic headwinds.

The Financial Discipline of Younger Cardholders

Millennials and Gen Z are defying stereotypes about their financial prudence. Their average FICO scores of 750 (vs. lower industry averages) and 22% lower delinquency rates than broader consumer benchmarks reflect a cohort that prioritizes convenience, rewards, and creditworthiness over using cards as liquidity tools. These customers revolve balances far less frequently than older generations, preferring to pay off balances monthly. Their focus on rewards-driven spending—particularly in dining and travel—aligns perfectly with AmEx’s premium product strategy.

Spending Growth and Strategic Leverage

The younger demographic’s 22% year-over-year surge in international spending has been a key driver of AmEx’s 13% revenue growth in international markets (Q1 2025). In the U.S., they now account for 35% of total consumer spending and represent 60% of new global consumer accounts, with 70% of these new accounts on fee-paying premium products. This shift is fueling AmEx’s net card fee growth, which rose 20% year-over-year in Q1 2025, marking the 27th consecutive quarter of double-digit growth.

AmEx’s share price has outperformed the broader market over the past three years, reflecting investor confidence in its premium strategy.

Marketing and Product Innovation: The $6 Billion Bet

To secure lifelong customer relationships, AmEx is allocating $6 billion annually to marketing in 2025, up from $6.8 billion in 2024, with a sharp focus on younger demographics. This includes:
- Premium product refreshes: Over 40 global product updates in 2025, including expanded benefits like luxury travel credits and concierge services.
- Tech-driven ecosystems: Acquisitions like Toc and Rome (dining platforms) and Center (small-business tools) are designed to deepen engagement with younger users.
- Fee-based revenue growth: Average fees on premium products have risen 40% over three years, supported by strong demand for value-added services.

Resilience Against Economic Uncertainty

AmEx’s premium customer base—with higher FICO scores and lower delinquency rates—insulates it from macro risks. Even with a projected 5.7% peak unemployment rate, executives remain confident in their 8-10% 2025 revenue growth target and $15–$15.50 EPS guidance. The company’s $207 billion in loans and receivables (up 7% year-over-year) and CET1 ratio of 10.7% ensure ample capital flexibility.

Risks and Considerations

• Currency headwinds: A strengthening U.S. dollar remains a drag, though its impact is now manageable.
• Commercial segment growth: While international SMEs performed well, domestic small-business spending grew only 2%, highlighting reliance on affluent consumers.
• Rewards expenses: A 16% year-over-year rise in rewards costs may pressure margins in the short term.

Conclusion: A Decade of Upside

American Express is not just meeting its 2025 targets—it is building a decade-long growth story. With Millennials and Gen Z still in their 20s and 30s, their spending power is set to rise steadily over the next two decades. The $17 billion Q1 revenue, 22% international spending surge, and 70% premium product adoption among new accounts underscore the strength of this strategy.

Crucially, AmEx’s fee-driven model (75% of revenue tied to fees and spending) and strong credit metrics (delinquency rates at 1.3%, below pre-pandemic levels) provide a buffer against economic cycles. Even if small businesses face headwinds, the company’s focus on affluent, younger customers—whose loyalty is reinforced by rewards and convenience—ensures resilience.

For investors, AmEx’s 27 consecutive quarters of fee growth and 35% stake in a demographic poised for lifetime growth make it a compelling long-term play. With shares trading at a P/E ratio of 21.5 (vs. the financial sector average of 15), the valuation reflects this optimism. As Gen Z and Millennials continue to prioritize experiences and premium services, American Express is well-positioned to turn them into lifelong, high-margin customers.

This trend line illustrates why AmEx’s premium strategy is a winning formula for investors.