Shares of consumer finance companies, including Capital One, American Express, and Affirm, fell by 7% to 8% during intraday trading on February 23. This decline appears to stem from investor concerns regarding potential disruptions caused by artificial intelligence (AI), which could lead to future layoffs and higher structural unemployment, consequently increasing credit costs and diminishing payment volumes.
Despite these fears, analysts suggest that worries surrounding AI’s immediate impact on the labor market may be overstated. Significant signs of disruption are not evident, and while the labor market shows some weakness, it mainly results from low hiring rates. This trend does not significantly hinder credit quality. Notably, credit costs fell substantially across the industry in 2025, although further improvements are not anticipated in 2026.
However, risks to the consumer finance sector remain. Changes in the unemployment rate are recognized as the most significant contributor to credit losses. While a spike in unemployment due to AI is not included in the current projections for these companies, it could elevate net charge-off estimates if such a scenario were to unfold.
Overall, analysts have maintained their fair value estimates for these firms. American Express holds a wide moat status, while Capital One and Affirm have narrow moat designations. After a challenging start to 2026, shares of both Capital One and Affirm are seen as modestly undervalued. Conversely, American Express continues to trade above its fair value estimate, suggesting that market expectations for its medium-term growth may be overly optimistic.
Investor apprehensions have also surfaced regarding the potential impact of AI agents on interchange fees charged by credit card issuers. However, this concern appears less credible to analysts, as the majority of interchange revenue is returned to cardholders in the form of reward points. This dynamic discourages users from switching to alternative payment methods, mitigating the potential for significant disruption in this area.
As the consumer finance sector navigates these challenges, the broader implications of AI advancements continue to unfold. Investors and stakeholders are urged to stay attuned to changes in the labor market, credit costs, and payment behaviors, as these factors will significantly influence the outlook for these firms and the industry at large.
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