Circle Stock Surges Nearly 50% Post-Earnings, But Short Squeeze Drives Rally More Than Fundamentals

Circle Stock Surges Nearly 50% Post-Earnings, But Short Squeeze Drives Rally More Than Fundamentals

Circle (CRCL), the issuer of the USDC stablecoin, has surged approximately 45% in less than two trading sessions following its Wednesday fourth quarter earnings report. The dramatic move represents a sharp reversal from an 80% drawdown the stock experienced from its record highs set last year.

However, analysts suggest the outsized rally was driven primarily by a crowded short squeeze rather than strong financial performance. Hedge funds had built up significant bearish bets ahead of the earnings announcement, setting up what researchers describe as a high-probability squeeze rather than a fundamental re-rating of the company.

Markus Thielen, founder of 10x Research, pointed to positioning as the real catalyst behind the stock’s violent move. “The magnitude of the move was not driven purely by the headline numbers. The real catalyst was positioning,” Thielen said in analysis of the earnings-driven surge.

According to Thielen’s data, hedge funds lost approximately $500 million on short positions in a single day as Circle shares squeezed higher. The scale of these losses underscores how crowded bearish positioning had become ahead of the earnings release.

Strong Growth Masks Profitability Challenges

While Circle delivered positive headline numbers in its earnings report, deeper analysis reveals profitability pressures despite growing stablecoin demand. The company’s flagship USDC stablecoin grew to $75.3 billion in circulation, up 72% year over year and outpacing rival Tether’s USDT growth.

Revenue from reserve income—primarily U.S. government debt backing USDC—rose 58% to $2.64 billion as benchmark interest rates compressed over the past year. However, distribution costs climbed even faster, increasing 66% to $1.66 billion as Circle invested in incentivizing partners and platforms to expand adoption.

The profitability challenge became evident in Circle’s bottom line. Despite surging USDC circulation, the company swung from a $156 million net profit in 2024 to a $70 million loss in the most recent year. Harvey Li, founder of Tokenization Insight, emphasized this dynamic: “Stablecoin may be scaling; stablecoin issuance is a tough business.”

Analyst Price Target Raised Despite Headwinds

Japanese investment bank Mizuho raised its Circle price target to $90 from $77 following the stronger-than-expected fourth quarter results. The bank cited optimism around prediction markets and growing interest in “agentic commerce,” where autonomous AI agents transact using Circle’s USDC stablecoin.

Despite the price target increase, Mizuho maintained a neutral rating on Circle stock, warning that lower interest rates could continue to weigh on reserve income going forward. This cautious stance reflects concerns that Circle’s profitability may remain pressured if the interest rate environment shifts.

Analysts Dan Dolev and Alexander Jenkins noted that Circle’s results topped expectations on both revenue and profit, easing investor concerns after an extended period of pessimism. Management highlighted prediction and betting platforms, particularly Polymarket, as meaningful drivers of recent USDC growth.

AI Agents and Prediction Markets Drive Use Case Expansion

Circle executives underscored the emerging role of USDC in agentic commerce, describing the stablecoin as a potential default currency for AI agents transacting across digital marketplaces. A growing number of products are being built on USDC and connected to Circle’s network.

Prediction and betting platforms serve as prominent examples of high-velocity use cases for the stablecoin. These applications drive frequent transaction flows that could support Circle’s long-term growth trajectory even if traditional reserve income growth remains constrained.

Mizuho’s analysis forecasts average USDC in circulation of roughly $123 billion in 2027, modeling reserve income of approximately $3.7 billion and EBITDA of $916 million that year, assuming rate cuts aligned with consensus expectations.

Valuation Premium to Payment Processors

The bank applied a 24x EBITDA multiple to arrive at its $90 price target—a premium to established payment processors such as Visa (V), Mastercard (MA), Coinbase (COIN), and Robinhood (HOOD). This valuation reflects confidence in Circle’s growth potential despite current profitability headwinds.

The distinction between the stock’s technical short squeeze and its underlying financial fundamentals remains important for investors evaluating Circle at current valuations. While the 45% post-earnings surge captured headlines, the company’s path to sustainable profitability remains a key question for longer-term investors.

Circle’s earnings results demonstrate the growing role stablecoins play in cryptocurrency infrastructure, particularly as use cases expand beyond simple value transfer into prediction markets and emerging AI-driven commerce applications.

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