All perks, no cushion? Find out the hidden risk behind this credit card giant's premium push!

From the desk of Miles Everson:

Hello!

I’m excited once again to share with you another important insight in today’s  “The Independent Investor!”

Every midweek, I publish articles about basic investing tips with hopes to help you achieve financial freedom and stability in the long run.

Today, I’d like to highlight my friend and colleague, Professor Joel Litman’s investing-related coaching comment about this credit card giant.

Read below to know more about this topic.

All perks, no cushion? Find out the hidden risk behind this credit card giant's premium push!

The world of investing often rewards confidence… but sometimes, it confuses confidence with invincibility.

Investors fall in love with a company’s story, its loyal customer base, or its polished brand image,  AND  forget that even the strongest players can overextend themselves.

Professor Joel Litman , Chairman and CEO of  Valens Research  and Chief Investment Officer of  Altimetry Financial Research, unpacked this very phenomenon in his analysis of  American Express, a company that has turned luxury spending into a lifestyle, and exclusivity into an empire.

Yet, as Professor Litman pointed out, the same narrative that made Amex a market darling could soon turn into its biggest vulnerability.

Going “All In” on Premium

Amex has made what it calls its “largest investment ever” in upgrading its Platinum lineup. The refresh affects both the personal and business versions of its flagship card, aimed squarely at high-spending, high-traveling customers.

The updates include new Centurion Lounges in Tokyo, Salt Lake City, and Newark, along with upgraded travel benefits, concierge services, and branded offers.

It’s a direct response to the rise of competitors like  Chase Sapphire Reserve  and  Capital One Venture X, which have gained ground with younger, travel-savvy consumers through flexible rewards and simpler perks.

In short, as Professor Litman described it, Amex is “upping the ante” in the premium credit card arms race.

The company clearly believes its prestige-focused strategy still holds power—banking on loyalty, status, and exclusivity to drive growth.

However, as Professor Litman warned investors, the market’s expectations might have gone too far.

Amex has been one of Wall Street’s best performers. Over the past two and a half years, its stock has doubled, outpacing the S&P 500 by roughly 40%.

This success wasn’t born from radical innovation but was built on  consistency.

While competitors offered cashback or generic travel points, Amex turned its cards into symbols of status. With every fee hike and every new travel perk, the company didn’t just sell financial services; it sold a lifestyle.

That strategy has paid off. Even during economic downturns, Amex weathered the storm better than its peers. Its interest income fell by only 14% during the Great Recession and by less than 10% in 2020—numbers that would make most financial institutions envious.

However, after years of outperformance, investor expectations have finally caught up to the company’s reality.

Professor Litman and his team often uses what they call the Embedded Expectations Analysis (EEA) framework to decode what the market is really pricing in.

The EEA works like a betting line: It uses a company’s current share price to back into what investors expect from its future performance, then compares those expectations to the company’s historical and likely future results.

In Amex’s case, its Uniform return on equity (ROE)—a cleaner, distortion-free measure of profitability—has stayed around 35% to 38% for the past five years.

That’s nearly three times the corporate average of 12%.

Wall Street analysts expect that impressive streak to continue.

The market?

It’s betting on much more!

According to Professor Litman, investors are pricing in an Amex ROE of 64% by 2029—a massive jump that implies the company will nearly double its profitability within a few years.

The problem is that Amex’s product upgrades, though flashy, may not be enough to meet those lofty expectations.

Rivals like Capital One’s Venture X and Chase’s Sapphire Reserve already offer comparable perks at nearly half the annual fee.

Both cards boast strong travel credits, lounge access, and wider acceptance globally, making them serious threats to Amex’s dominance.

Meanwhile, the expansion of luxury lounges and concierge services isn’t cheap. These amenities require heavy capital investment, long-term leases, and higher customer-acquisition costs—all of which can erode margins over time.

Fee hikes, while boosting short-term revenue, risk alienating customers who might decide that prestige isn’t worth the price tag.

That’s what makes the valuation so precarious. The market is acting as if Amex can’t falter.

However, as Professor Litman warned, even a modest stumble could cause investors to rethink their confidence and send the stock tumbling.

The Key Takeaway

The story of Amex isn’t just about one company; it’s a broader lesson about market psychology.

Investors love strong brands, loyal customers, and predictable cash flows… but when optimism hardens into complacency, valuations can lose touch with reality.

As Professor Litman emphasizes:

Amex may continue to thrive as a business. However, for investors betting on unbroken dominance, the risk-reward equation is becoming increasingly unbalanced.

The card may be Platinum… but that doesn’t mean the stock will always shine the same way.

Hope you’ve found this week’s insights interesting and helpful.

Stay tuned for next Wednesday’s The Independent Investor!

Americans are bracing for a rough 2026. However, that’s not entirely a bad thing for the stock market.

Learn about  the importance of investor sentiment  in next week’s article!