Visa vs. American Express: Which Financial Stock Is the Better Buy?

Visa (NYSE: V) and American Express (NYSE: AXP) are two of the most well-known financial companies that enable countless transactions each day. Although they operate in the same industry, there are subtle differences between the two that are important for investors to know. If you could only invest in Visa or American Express, these are the factors to consider.

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Visa will always have higher net profit margins

Visa wrapped up its fiscal 2026 third quarter with a 48.4% net profit margin, while American Express reported a 16.8% net profit margin. American Express is unlikely to close that gap because the companies have some differences in their business models.

While many people use Visa and American Express credit cards, these companies make most of their revenue through their payment networks. They earn a small percentage of each transaction they process.

The difference emerges when looking beyond payment networks. Visa is a pure play in the industry. It does not collect interest on credit card debt, and if a consumer defaults on their card, that debt does not affect Visa's financials.

American Express operates as a lender. It makes money from interest but also loses money when consumers default on their balances. The lending model American Express uses results in higher operating expenses.

Analyzing the valuation gap

It makes sense for Visa to trade at a richer valuation than American Express, since the former enjoys higher profit margins. However, the gap has become quite sizable. American Express trades at a 20 price-to-earnings (P/E) ratio compared to Visa's 32 P/E ratio.

That gap seems excessive when considering that both companies are achieving similar growth rates. Visa posted 14% year-over-year revenue growth in its fiscal 2026 Q3, while American Express delivered a 10% growth rate. American Express' net income had a higher growth rate, although a 1% edge isn't much.

American Express has the edge when it comes to long-term growth. Its five-year compound annual growth rate (CAGR) is 16.1%, while Visa has maintained a 12.9% revenue CAGR over that stretch.

Both companies are achieving very similar revenue and net income growth rates. Even though Visa has higher net profit margins, both companies are moving at a similar pace. This detail suggests that Visa may not deserve to trade at a high premium over American Express. While Visa shouldn't drop down to a 20 P/E ratio, American Express' valuation may have more room to run.

Granted, American Express won't reach the same valuation as Visa due to credit risk.

American Express is winning over Gen Z

Both companies are well positioned for the future, but American Express may be making more progress with younger generations. It has become Gen Z's favorite credit card, and the company is now aiming to become that generation's favorite bank.

Visa is also doing well with this consumer base, but American Express touts it in quarterly press releases. American Express CEO Stephen J. Squeri said that the company has "continued to attract a large number of new customers, particularly Millennials and Gen-Zs who represent greater lifetime value."

Becoming the go-to choice among younger generations can help American Express maintain solid revenue growth for additional decades. Visa still has the larger network. It has more than five billion cards out in the wild, while American Express only has 155.9 million cards in force. Both fintech companies grew their total cards by 8% year over year.

American Express has a larger untapped market than Visa. The former's focus on high-end consumers ensures that it won't completely close the gap, but Visa is likely to report decelerating growth rates first just due to how many people already use Visa cards.

Both companies are foundational pieces of consumerism, but American Express looks like the better pick. It's no surprise that American Express has a lower valuation, but the gap may be a bit excessive.

American Express is an advertising partner of Motley Fool Money. Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Express and Visa. The Motley Fool has a disclosure policy.