Mastercard Stock Slides 10% in H1 Despite 15% Earnings Growth
Giverny Capital Asset Management's latest investor letter highlights a growing disconnect in the S&P 500, where momentum-driven tech rallies are masking lagging stock prices for high-quality earnings compounders like Mastercard.
Giverny Capital Asset Management recently published its second-quarter 2026 investor letter, detailing a challenging environment for value-oriented strategies. The firm's model portfolio returned 13.70% during the quarter, falling short of the S&P 500's robust 15.20% return. On a year-to-date basis, the fund has gained 5.89%, while the broader index has advanced 10.21%.
The broader market rally has been heavily concentrated in tech giants capitalizing on artificial intelligence, raising concerns about the sustainability of "moonshot" investments. However, while the S&P 500 climbed 10.2% in the first half of the year, 210 stocks within the index posted negative returns.
Giverny Capital pointed to unusually high levels of dispersion across the market to explain its relative underperformance. "Roughly 40% of the Index outperforming the average and 60% underperforming is not so unusual, but two-thirds of that lagging group underperforming by more than 10 percentage points seems like a lot," the firm noted.
The firm highlighted that this divergence is particularly striking given the underlying earnings distribution. "Even this level of dispersion might make sense if most of the earnings growth in the Index was concentrated in the 200 stocks that were up double digits. This is not the case," the letter explained.
Mastercard serves as a primary example of this disconnect between corporate fundamentals and equity valuations. The global payment technology company's shares fell 10% in the first half of 2026 and have lagged the broader index for the past five years. The stock closed at $547.44 on July 20, reflecting a market capitalization of $483.71 billion, and is down 2.99% over a 52-week period.
Wall Street analysts expect Mastercard to continue compounding its earnings per share by 15% over the coming years. This projected growth rate is roughly the same as the company's EPS growth over the past two decades.
The firm highlighted several other index constituents suffering a similar disconnect despite healthy financials. "We own Index constituents such as Charles Schwab, JP Morgan, Mastercard Incorporated and Progressive Corp. that continue to grow their earnings per share at healthy rates and in some cases at higher rates than usual, but whose stock prices are lagging," Giverny Capital stated.
The asset manager views the current environment through the lens of Benjamin Graham's famous adage that the market is a "voting machine" in the short term and a "weighing machine" in the long term. Giverny Capital recommends that investors balance portfolios with both emerging tech leaders and established compounders to navigate these anomalies.
