NEW YORK, Jan 20, 2026, 10:41 EST
- Wedgewood cut its PayPal holdings in Q4, pointing to weaker volume late in the quarter and rising costs linked to AI-driven shopping.
- The firm highlighted stronger momentum in Google search and cloud, driven in part by growth tied to “AI Overviews.”
- Shares of PayPal dropped roughly 2.3%, while Alphabet slipped around 1.7% in early New York trading.
Wedgewood Partners cut back its stake in PayPal during the fourth quarter, citing a slowdown in transaction volumes late in the period and increased spending that might weigh on profit growth. PayPal shares slipped roughly 2.3%, while Alphabet dropped about 1.7% in morning trading Tuesday.
The move offers a glimpse into how stock pickers are staying selective in a market that continues to favor anything labeled “AI.” Wedgewood pointed to crowded trades and stretched valuations as fresh hurdles, even as it maintained exposure to major U.S. tech names.
Tension is mounting around the checkout process. Mastercard, in collaboration with Google and Microsoft, is advocating for standards around “agentic commerce” — AI agents that handle shopping and payments for users — as the concept shifts from demos to actual transactions. “Agentic commerce will only scale at the speed of trust,” said Mastercard executive vice president Sherri Haymond to Axios. Axios
Wedgewood’s letter highlighted Alphabet, Google’s parent company, as a top performer. It noted a boost in search ad momentum alongside better trends in Google Cloud. Search revenue grew roughly 15%, the firm said, while Cloud revenue and backlog increased amid rising AI workloads.
AI Overviews are Google’s AI-generated summaries showing up at the top of certain search results, potentially shifting click patterns and ad visibility. “Tokens” refer to the small chunks of text AI systems handle, while “backlog” means work secured but not yet recognized as revenue.
In its fourth-quarter client letter, Wedgewood’s chief investment officer David A. Rolfe said the firm has “curbed our enthusiasm” and is holding out for better entry points. Rolfe noted that PayPal’s increased spending and weaker late-quarter volumes could lead to “slower profit growth,” while Alphabet saw a boost as “search revenues accelerated” and Google Cloud handled roughly 1.3 quadrillion AI tokens monthly. Wedgewood Partners
PayPal’s core “branded checkout” business—the PayPal button on merchant sites—continued to grow volume during the quarter, Wedgewood noted, though momentum slowed toward the end. The firm also highlighted new expenses related to agentic commerce deals, including efforts to integrate PayPal with assistants like OpenAI’s ChatGPT and Perplexity.
Alphabet’s push into cloud computing hits a fiercely competitive field, as Google Cloud scrambles to catch up with Amazon’s AWS and Microsoft’s Azure. The payments landscape is just as intense. AI-driven shopping might shift more transactions into chat interfaces, upping the pressure on wallets and networks battling to remain central to the user experience.
Earlier this month, another investor letter touched on Alphabet with a similar, wider perspective. Bristlemoon Global Fund noted that sentiment had turned “unduly pessimistic” and credited the stock’s gains with “contributed meaningfully” to returns. Finviz
The risk cuts both ways. AI in search might shake up ad formats or change how users behave, while cloud demand could dip if customers pull back or move workloads elsewhere. For PayPal, the downside feels more immediate: a softer macro environment, slower uptake of new checkout tools, and rising costs hitting before any gains from AI-driven commerce show up.
Investors have clear signals to monitor. Keep an eye on PayPal’s branded checkout activity and the pace of its expense growth. Also, watch if Alphabet manages to convert AI adoption into steady paid clicks and long-term cloud deals.
