Shares of consumer finance names such as Capital One, American Express, and Affirm traded 7%-8% lower intraday on Feb. 23, likely on concerns that disruption from artificial intelligence could lead to future layoffs and structurally higher unemployment, increasing credit costs and lowering payment volume.
Why it matters: We view market concerns as overstated, as signs of significant AI disruption are elusive so far.
- While the labor market has shown signs of weakness, this has mostly been due to low hiring rates, which does not create meaningful headwinds to credit quality. Case in point, credit costs fell significantly industrywide in 2025, though we do not expect further improvement in 2026.
- That said, the risk to the consumer finance industry is not zero. Changes in the unemployment rate are the single largest driver of credit losses, and while it is not part of our base case for these firms, a spike in unemployment from AI would increase our net charge-off projections.
The bottom line: We maintain our fair value estimates for wide-moat American Express, narrow-moat Capital One, and narrow-moat Affirm.
- Following a rough start to 2026, we see shares of Capital One and Affirm as modestly undervalued. American Express still trades above our fair value estimate as we think the market is expecting too much medium-term growth from the company.
- There have also been concerns that AI agents will disrupt the interchange fees charged by the credit card issuers. This is less of a credible concern to us as most interchange revenue is given to the card holder in the form of reward points, disincentivizing the actual user from switching to other payment methods.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article.
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