Circle Stock Is a Sell, This Analyst Says. Why Interest Rates Are a Key Factor.

Mizuho issued an Underperform rating and an $85 price target for the stablecoin issuer. (Michael Nagle/Bloomberg)

Shares of Circle Internet Group were dropping modestly Tuesday after a Wall Street firm counseled investors to steer clear, citing risks to the company’s revenue model.

Dan Dolev of Mizuho Securities initiated coverage of the stablecoin issuer with an Underperform rating and an $85 price target in a research note Tuesday. While the company has captured investors’ enthusiasm unlike perhaps any other large-cap stock since its June 5 initial public offering, the valuation has outstripped the fundamentals, Dolev said.

Circle stock was down 2.4% to $202.58 following the note, but shares remain up more than 450% from their IPO price of $31.

The dramatic rise has understandably divided opinion on Wall Street, with some analysts viewing the company, which issues the USDC stablecoin, as a “must-hold” investment and others seeing a hyped-up crypto stock. But even some bears have conceded that, while Circle’s valuation has ballooned too much for their liking, the underlying business is strong.

Dolev focused on the substantive questions, starting with perhaps the most essential part of any business: How does Circle make money?

In 2024, more than 99% of the company’s total revenue was interest income on U.S. Treasuries, which Circle holds as reserve assets for the USDC in circulation. Those vehicles generated a healthy 5% average yield, but the reliance on reserve income makes the company vulnerable to looming rate cuts, Dolev argued.

“Since CRCL lacks meaningful fee-based or other recurring revenue streams, lost yield (e.g. due to rate cuts) essentially flows directly to profits,” he said.

Consensus estimates project a 125 basis-point drop in the federal funds rate by the end of 2026, according to CME FedWatch. Meanwhile, President Donald Trump has been pining for deeper and more immediate cuts by the Federal Reserve.

Circle declined to comment for this article.

The company can make up for lower yields by rapidly increasing the amount of USDC in circulation, as it did before the IPO. Businesses across industries have made moves to adopt stablecoins since the Senate advanced legislation to establish a regulatory framework for the asset class in June. And stablecoins’ combined market value is projected to reach $500 billion by the end of 2026 from $260 billion today, according to Seaport Research Partners.

But here, too, Dolev isn’t convinced. The amount of USDC in circulation rose by 78% last year but has been flat since April, despite the frenzy surrounding Circle. And while the company has a first-mover advantage and a reputation for legal compliance, newfound regulatory clarity could unleash competing stablecoins from big-name brands.

Mizuho projects USDC circulation to rise by more than 30% a year through 2027—a very healthy amount—but even this level of growth will result in a shortfall compared with consensus estimates. The firm forecasts revenue of $3.3 billion in 2027, around 27% below Wall Street’s call for $4.5 billion.

Circle’s bottom line faces risks, too. Growing distribution costs, paid to partners such as Coinbase to attract more USDC holders, have squeezed the company’s net revenue margin, Dolev argued. Distribution costs comprised 39% of Circle’s reserve income in 2022, and that number was up to 62% as of the first quarter of 2025.

All told, the pressures on both the top and bottom lines led Mizuho to issue a cautious outlook on the otherwise booming stock. “We do not believe CRCL’s valuation appropriately reflects key risks to the earnings over the medium-term,” Dolev wrote.

Mizuho remains in the slim minority on Wall Street, though. Of the 15 analysts polled by FactSet, five have issued Buy or equivalent ratings, five have rated the stock Neutral, and three have gone with a Sell.

Write to Nate Wolf at nate.wolf@barrons.com