Markets on the Move: PayPal, HPQ Silicon and Salesforce in Focus

PayPal: No Takeover After All?

For many, the payment provider PayPal is a handy tool. You go to the stadium or the movies together; one person pays for the tickets online in advance, and the other quickly transfers their share via app—without any fees. That is how many people use the US company's online wallet.

The stock market thought this business model was pretty great—until artificial intelligence entered the picture. The markets began speculating on PayPal's demise. AI would change everything and force PayPal out of business, they said. Like many other software companies, PayPal shares plummeted. Within 5 years, the company temporarily lost more than 80% of its market value.

During this time, however, PayPal continued to generate substantial cash flows. In the just-concluded second quarter alone, the company, founded in the 1990s, generated free cash flow of USD 1.78 billion—a whopping 170% increase over the same period the previous year. It was only a matter of time before potential buyers came onto the scene. In this case, it came in the form of the online payment processor Stripe, together with Advent. It was reported that an offer exceeding USD 50 billion was made. But apparently, this offer is no longer on the table. As Bloomberg reported last Thursday, the consortium had called off its takeover plans. Although there were no official statements, the stock market was quick to react. PayPal's stock briefly fell by 18% in New York.

Three factors are said to have been decisive in bringing the talks to an end. First, there were disagreements over the valuation, which were exacerbated by the stock's rise after news of the takeover interest broke. Second, there were reportedly concerns within the boards of directors. Lastly, there were also antitrust objections. Stripe is itself a payment giant and presumably did not want to get bogged down in a protracted antitrust review.

At the equivalent of around EUR 38 billion, we believe PayPal is fairly valued for its cash-flow-rich business. Should one buy in now following the stock's correction? Not necessarily. It is certainly smarter to wait and see how things develop first. After all, the recent upward movement was driven exclusively by takeover speculation.

HPQ Silicon: Drone Battery Business Taking Off

Whether it is at Leipzig Airport, in the war in Ukraine, or during an attack on Iran, drones are becoming increasingly valuable in modern warfare. This also applies to defending against those very drones. Accordingly, more and more armies are upgrading their capabilities. Every general and every defense minister should realize that future wars can no longer be won with heavy ships or tanks alone.

But in addition to software and flight capabilities, the battery plays a crucial role. This is because battery performance is a kind of bottleneck for unmanned aerial vehicles. The better the battery, the more capable the drone.

HPQ Silicon and its French subsidiary Novacium are among the most innovative players in this field. Both companies are focusing on silicon anode technology, which is expected to enable a higher energy density compared to conventional graphite anodes. This offers advantages in terms of range and payload capacity for drones. HPQ has now delivered custom battery packs to three European drone manufacturers for final-phase evaluation. Each customer received 10 custom-made drone battery packs. The goal is to evaluate the technology for potential integration into the manufacturers' respective drone platforms. Since joint testing phases have already taken place, successful evaluation could lead to new orders for HPQ's technology. Management emphasizes that this is a key milestone in validating their technology across various drone platforms.

Shortly before this, HPQ Silicon also reported receiving its first commercial order for GEN3 batteries for a regiment of the French Army. Here, the batteries are to be integrated into FPV drones. This marks the first successful step into the French defense sector. The order was awarded following months of testing; HPQ and its partners are already conducting further commercial discussions in the security and defense sectors. Consequently, additional success stories could follow in the course of the second half of the year.

HPQ Silicon's stock currently has a market capitalization of approximately EUR 40 million. The shares have recently been working on forming a bottom. We consider the stock highly promising, as HPQ has two additional technologies in its portfolio alongside its battery business that are expected to reach commercialization within the next 18 months. For long-term investors, this presents an opportunity to enter a small-cap tech stock at a favourable price.

Salesforce: The Roller-Coaster Ride Appears to Be Over

Salesforce shareholders have experienced a real roller-coaster ride in recent years. The company, which supports other firms in managing their customer relationships via the cloud, experienced a massive upswing between 2022 and the end of 2024, with the stock more than doubling during this period. However, this gain was then virtually entirely erased by mid-year. As with PayPal, the reasons are primarily rooted in the rise of AI. Here, too, there were concerns that the business model could be displaced by artificial intelligence.

But now Salesforce has surprised the market with extremely strong quarterly results. And this time, the stock market reacted positively. Salesforce reported revenue of USD 11.35 billion (+10.8%) for the period between April and June, while net income nearly doubled to USD 3.53 billion. The company thus significantly exceeded market expectations. As usual, we turn our attention to free cash flow. Here, too, Salesforce delivered impressive results, with USD 1.10 billion in revenue, an increase of 81% compared to the same quarter last year.

Salesforce itself is heavily relying on AI to meet customer needs in service and sales. It appears to be winning over customers with its own AI agents. In addition, the market appears to be responding favourably to the ongoing and completed acquisitions of Contentful, Fin, and Qualified.com.

However, it is also a fact that management remains fully committed to share buybacks. In the first half of the year alone, the company launched a program worth approximately USD 27 billion. Salesforce shares have gained about 50% since mid-June. Investors looking to get in should place limit orders in the market as the sharp rise could prompt some traders to take profits.

Now that the acquisition of PayPal has been called off, according to Bloomberg, the future of the popular payment processor is up in the air. The high cash flow could attract new suitors, particularly from the capital-rich private equity sector. At HPQ, the commercialization of the drone battery business is off to a successful start. Further orders in the coming months could provide additional momentum here. At Salesforce, operational performance is once again being recognized. The software company is fully committed to integrating AI. However, the sharp rise since mid-June warrants caution for newcomers.