Shares of Circle Internet Group fell sharply on Thursday after analysts at Compass Point downgraded the stock, citing concerns over a looming margin squeeze tied to its core USDC business. The stock declined 7.44% to $87.41, reversing some of its recent gains after rising 19% so far in 2026 till Wednesday. Compass Point cut its rating to Sell from Neutral and trimmed its price target to $77 from $79, warning that recent growth trends may not translate into stronger profitability. Growth shifts toward lower-margin channels While supply of USDC—the company’s flagship dollar-pegged stablecoin—has remained resilient, analysts highlighted a structural shift in where that growth is occurring. According to Compass Point, just under 80% of USDC supply growth since early February has come from platforms such as Sky, Binance, and Ethena. These partnerships involve distribution agreements that reduce Circle’s share of interest income generated from USDC reserves. Circle earns higher margins on USDC held outside these networks, referred to as “off-platform” supply. The shift toward partnership-driven growth is therefore diluting profitability even as overall adoption rises. This dynamic marks a departure from previous crypto downturns, when USDC supply typically declined. In the current environment, yield-sharing arrangements are supporting circulation levels but simultaneously pressuring margins. Earnings risks build ahead of results Analysts expect these trends to weigh on upcoming earnings, with Compass Point forecasting a decline in profitability. “CRCL’s 1Q results could underwhelm rising expectations,” wrote Ed Engel. “Looking into 2Q, USDC across partnership platforms remains above 1Q’s average level. Therefore, we expect gross margins to remain under pressure if current trends persist.” The firm estimates that Circle’s earnings before interest, taxes, depreciation, and amortization will fall 19% in the first quarter compared with the previous quarter. Its forecast for fiscal 2027 EBITDA is also 20% below Wall Street consensus estimates. The warning comes as investors increasingly focus on the quality of growth rather than just expansion in USDC supply. Rate sensitivity and diversification challenges Circle’s business model remains heavily tied to interest income generated from reserves backing USDC. In the fourth quarter of 2025, reserve income accounted for [MONEY value="733000000" currency="usd" notation="long" replace="false"] out of total revenue of [MONEY value="770000000" currency="usd" notation="long" replace="false"], underscoring its reliance on prevailing interest rates. While USDC circulation grew 72% to [MONEY value="75300000000" currency="usd" notation="long" replace="false"] during the period, a decline in reserve return rates partially offset the benefits, highlighting the company’s exposure to macroeconomic conditions. This rate sensitivity introduces volatility into earnings, positioning Circle more like a financial platform dependent on yield environments than a traditional technology firm. To address this, the company is expanding into new areas, including Circle Payments Network, StableFX, and its Arc blockchain infrastructure. However, non-interest income remains a relatively small portion of total revenue, indicating that diversification is still in its early stages. Despite the cautious outlook from Compass Point, broader Wall Street sentiment remains more balanced. Of 27 analysts tracked by FactSet, 48% rate the stock a Buy, while 44% have a Hold rating, with an average price target of $131.29. Still, the near-term outlook hinges on whether Circle can sustain growth without further eroding margins—a challenge that could shape investor sentiment in the months ahead. The post Circle stock drops as analysts warn of margin squeeze ahead appeared first on Invezz
