PayPal’s Pivot: Can New Ventures Offset Core Business Erosion?

PayPal finds itself navigating a complex landscape at the start of the week, attempting to balance ambitious future initiatives against mounting pressures in its foundational operations. The company's strategic shift, focusing on its PYUSD stablecoin to tap into AI-sector growth, unfolds alongside a fresh downgrade from Morgan Stanley and persistent structural challenges. The central dilemma is whether this leap into novel business models can counterbalance the gradual decline of its traditional payment processing dominance.

CEO Alex Chriss has framed PayPal's situation as a classic "Innovator's Dilemma," where a profitable core business faces threats while new growth avenues introduce their own uncertainties. Recent corporate moves highlight this tension:

• Legacy Core Under Pressure: The ubiquitous PayPal checkout button is ceding ground as smartphone-integrated payment systems and modern platforms offer users a more streamlined experience.
• Strategic Expansion: The company is broadening the use of its PYUSD stablecoin, aiming to facilitate on-chain financing for AI infrastructure, including high-demand hardware like GPUs and data centers. This initiative seeks to connect decentralized finance (DeFi) with the booming AI sector.
• Banking Ambition: A significant development was PayPal's application to form an Industrial Bank in Utah on December 15. This charter would allow it to lend directly to small businesses, bypassing partner banks.

The pursuit of a banking license represents a profound shift. It would transition PayPal from a model heavily reliant on transaction volume toward a more balance-sheet intensive role as a direct lender. While this opens potential for new margins and faster credit deployment, it concurrently elevates exposure to credit and regulatory risks.

Analyst Sentiment Weighs on Shares

The immediate catalyst for recent share price weakness was a pronounced rating cut by Morgan Stanley late last week. Analyst James Faucette moved the stock to "Underweight" from his previous rating, setting a price target of 51 euros. His rationale centered on structural risks within PayPal's "Branded Checkout" core product, which is losing market share to competitors including Apple Pay and Stripe.

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

Trading near 51 euros, the equity now stands approximately 39% below its level at the start of the year and close to 43% beneath its 52-week high from January. Furthermore, the current price sits decisively below the key 50, 100, and 200-day moving averages—a technical indication that the prevailing downtrend remains intact.

There is a notable irony in the timing of PayPal's new AI-focused strategy. Morgan Stanley has previously suggested that "agentic commerce," or AI-driven automated purchasing, could ultimately pressure PayPal's traditional digital wallet model. Now, the company is attempting to leverage that very same technological trend as a cornerstone of its defensive pivot.

Technical Perspective and Forward Look

From a chart analysis standpoint, the stock is hovering just above its 52-week low of 50.41 euros, trading roughly 14% under its 200-day moving average. The 14-day Relative Strength Index (RSI) reading near 70 points suggests a short-term overbought condition, implying that even minor pullbacks following brief recovery rallies cannot be ruled out.

Investor attention in the near term is likely to focus on two key areas. First, further details regarding the planned Industrial Bank and potential partnerships under the AI financing initiative will be scrutinized. Second, the market will assess whether the structural risks to the checkout business are already fully reflected in the share price. Greater clarity is expected with the next quarterly report in late January 2026, when PayPal will need to present initial progress metrics and key figures for its new business segments.