By Key Points
Mastercard’s strengths include its high operating margins and strong long-term growth potential.
While similar in many ways to competitor Visa, Mastercard has a slight edge over its rival.
Even as its premium valuation could expose it to heavy volatility if macro conditions worsen, consider Mastercard a strong long-term buy at today’s prices.
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“Magnificent Seven” stocks like Microsoft and Amazon may still trade at or near all-time highs, but you may want to diversify your megacap positions. The “Mag Seven” may have surged thanks to the artificial intelligence (AI) boom, but their future success hinges heavily on AI spending.
There’s nothing wrong with being bullish on the AI megatrend, but consider spreading your wagers elsewhere, to other high-growth opportunities. Take, for instance, another trend that isn’t slowing down: the digitalization of payments. With this trend, one stock in particular fits the bill: Mastercard (NYSE: MA).
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Image source: Getty Images.
Portrait of a payments tollbooth
Mastercard may be synonymous with credit cards, but neither Mastercard nor its competitor Visa (NYSE: V) issues payment cards. Banks issue the cards but use the companies’ respective payment networks to operate them.
In other words, payment stocks like Mastercard don’t carry consumer credit risk like bank stocks. Think of Mastercard and similar names as the midstream names among financial stocks: middlemen that collect a small fee on every card swipe or digital payment transaction processed through their networks.
Given the steadiness of this revenue stream and the fact that payment companies like this one built out their networks long ago, a considerable amount of this revenue flows straight to the bottom line. Take, for instance, Mastercard’s fiscal results during the quarter ending June 30, 2026.
For the quarter, Mastercard reported $4.4 billion in net income, on $9.3 billion in net revenue. That’s a net margin of over 47%. Better yet, alongside strong revenue streams, low capital intensity, and high margins, Mastercard has yet another feather in its cap: the prospect of further double-digit revenue and earnings growth in the years ahead.
Mastercard’s growth edge
So I’m sure you’re thinking: Why Mastercard over Visa? Why not both? Both valid questions. With both stocks trading at around 25 times forward earnings, competing in the same industry, and sporting similar forward dividend yields, I agree it seems odd to choose one over the other. That said, in terms of growth, many signs point to Mastercard having the edge.
Last quarter, when Mastercard reported 14% and 22% revenue and earnings per share (EPS) growth, respectively, Visa reported similar revenue growth, but EPS growth of just 10%. Even as Visa reported slightly stronger numbers on metrics such as cross-border volume growth and total payment volume growth, the long-term earnings growth forecast favors Mastercard.
While analyst forecasts call for Mastercard’s EPS to grow 52% between 2026 and 2029, similar forecasts for Visa call for 46.2% EPS growth. That said, much as there’s risk and uncertainty to the AI hyperscaler bull case, the digitalization-of-payments trend does not guarantee smooth sailing ahead for either.
Trading at a high earnings multiple, shares could experience a sharp pullback if future growth fails to meet or beat expectations. Events like a global economic slowdown could serve as a headwind. Visa shares also entail similar strengths and risks, but with growth potential serving as a tiebreaker, consider Mastercard the stronger long-term buy today.
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Mastercard, Microsoft, and Visa. The Motley Fool has a disclosure policy.
