Circle's Stock Plummets Despite Revenue Surge, Highlighting Valuation Risks

What happened

Circle's stock has fallen 75% from its post-IPO peak to around $78.61, despite Q3 2025 revenue surging 66% to $740 million and USDC circulation growing 108% year-over-year. A Seeking Alpha article frames this as a buying opportunity, citing robust business momentum and a predicted 40% CAGR for stablecoin growth. However, DeepValue's report cautions that Circle's valuation at ~69x EV/EBITDA already prices in sustained high growth and gradual rate cuts, with earnings 95%+ tied to interest on reserves. Key risks include potential Fed rate cuts compressing reserve yields, intensifying competition from USDT, and the need for non-reserve revenue to scale beyond its current small base. Market sentiment remains split, with some investors seeing value after the drop, while others warn of overvaluation and sensitivity to macroeconomic shifts.

Implication

The stock's decline underscores a disconnect between operational performance and market expectations, indicating that prior euphoria has given way to a more sober assessment of risks. While revenue growth is strong, Circle's heavy reliance on reserve income makes it highly vulnerable to Federal Reserve policy shifts, which could rapidly erode earnings if cuts exceed projections. Competition from Tether and regulatory uncertainties add further headwinds, potentially capping USDC's market share and margin expansion over the medium term. For bullish investors, any position should be small and contingent on clear evidence of diversification into fee-based revenues from Arc and other infrastructure initiatives. Overall, the risk-reward profile favors waiting for either a lower entry price or concrete signs of durable monetization beyond interest spreads, aligning with DeepValue's 'WAIT' rating.

Thesis delta

The new article does not materially alter the investment thesis; it reinforces Circle's growth trajectory but overlooks the embedded risks highlighted in the DeepValue report. The core thesis remains that Circle is overvalued given its dependency on volatile interest income and uncertain fee revenue scaling, with no shift in the recommended 'WAIT' stance until mid-2026 checkpoints provide clearer direction.