PayPal’s AI Ambition: Can a New Stablecoin Partnership Revive Its Stock?

While PayPal's shares continue to languish near annual lows, the company is making a strategic push into the artificial intelligence sector through its PYUSD stablecoin. A new financing partnership aims to embed the digital currency into the core infrastructure of AI, presenting a potential long-term growth avenue that contrasts sharply with the market's current skeptical stance.

The view from large investors is divided. Recent regulatory filings reveal that Ariose Capital Management aggressively increased its stake in the third quarter, boosting its holding by 347% through the purchase of 149,898 shares. The firm now owns 193,100 shares valued at approximately $12.95 million. In a separate major move, Norges Bank established a new position in Q2 with a volume of around $921.57 million.

This institutional accumulation is countered by insider selling activity. Over the past three months, company insiders were net sellers, disposing of a total of 36,156 shares worth $2.43 million.

The AI Financing Play: PYUSD Finds a Niche

The centerpiece of PayPal's new strategy is a collaboration with the credit protocol USD.AI, which provides financing for AI companies. The partnership will see USD.AI denominate its loans in PayPal's stablecoin, PYUSD, directly linking the digital currency to funding for AI infrastructure.

Key elements of the deal include:
* Loans for graphics processing units (GPUs), data centers, and other AI infrastructure will be issued in PYUSD.
* Borrowers can receive disbursements directly into their PayPal accounts.
* A one-year customer program launching in early January 2026 will offer a 4.5% yield on deposits of up to $1 billion.
* USD.AI currently manages over $650 million in on-chain, compute-collateralized assets.

The potential market is vast. Analysts at Morgan Stanley estimate global spending on AI compute could reach $6.7 trillion by 2029, framing this cooperation as a possible sustained growth driver for PayPal.

Solid Fundamentals Meet Weak Share Performance

Despite posting respectable financial results, PayPal's stock remains under significant pressure. Over a 90-day period, the return sits at approximately -18.45%. The five-year picture is even more stark, with a total shareholder return of roughly -75.97%.

The company's underlying metrics, however, tell a different story:
* Market Capitalization: ~$54.4 billion
* Forward P/E Ratio: Approximately 10–11
* Trailing P/E Ratio: 11.65
* Free Cash Flow Yield: ~11–12.5%
* Dividend Yield: ~1.0% ($0.56 annualized)

Should investors sell immediately? Or is it worth buying PayPal?

Management has provided an upbeat outlook for fiscal 2025, forecasting earnings per share (EPS) in the range of $5.35 to $5.39, surpassing earlier consensus estimates of about $5.25. This follows a strong Q3 2025, where PayPal reported EPS of $1.34, beating expectations by $0.14. Quarterly revenue reached $8.42 billion, a 7.3% year-over-year increase.

Diverging Business Segment Trends

A breakdown of operations shows contrasting dynamics. The peer-to-peer platform Venmo demonstrated robust growth last quarter, with revenue climbing 20% and highlighting strength among younger user demographics. The company's total payment volume for Q3 hit approximately $458 billion, an 8% increase from the prior year.

Conversely, growth in active accounts has been muted at about 1%. Furthermore, the total number of transactions fell by roughly 5% as management deliberately scaled back low-volume or less profitable activities.

Wall Street's Cautious Stance

Analyst sentiment currently leans toward caution. The consensus rating is "Hold," with an average price target of $78.29. Recent adjustments have been mixed:
* Mizuho: Lowered target from $84 to $75, maintains "outperform" rating.
* Bank of America: Reduced target from $93 to $68, maintains "neutral" rating.
* Canaccord Genuity: Raised target from $96 to $100, maintains "buy" rating.

At its current price near $58, the stock trades about 55% below its average price-to-earnings multiple of the last five years. Some valuation models suggest a fair value significantly above the current quote, interpreting the weakness as a potential long-term mispricing.

Mounting Competitive Threats

Beyond its internal execution, PayPal faces growing structural challenges to its business model. The rise of real-time payment systems, such as Brazil's Pix which enables free instant transfers, directly challenges the role of traditional intermediaries like PayPal.

Additionally, digital banks and fintech companies are increasingly building their own payment layers. These industry shifts could gradually erode PayPal's competitive position and limit pricing power in its core payment processing business.