Circle (CRCL), issuer of the USDC stablecoin, continues to surge, now 45% higher in less than two sessions following its Wednesday fourth quarter earnings report.

The move snapped what had been a brutal 80% drawdown from record highs hit last year.

While the company delivered strong growth in USDC supply, the stock’s outsized reaction was driven more by crowded short bets heading into the print than by strong financials, analysts suggested.

"The magnitude of the move was not driven purely by the headline numbers. The real catalyst was positioning," said Markus Thielen, founder of 10x Research.

Hedge funds had built sizable bearish exposure into the report, according to his data. That setup pointed to a "high-probability short squeeze rather than a fundamental re-rating," Thielen added.

He estimated that hedge funds had lost roughly $500 million in a single day on shorts as shares squeezed higher.

Tough business

While Circle's report produced positive headline numbers, digging deeper into the data shows that the profitability of the business slipped despite growing stablecoin demand.

On the fundamentals, Circle’s flagship USDC stablecoin grew to $75.3 billion in circulation, up 72% year over year and outpacing rival Tether’s USDT growth, Harvey Li, founder of Tokenization Insight, noted in a report.

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. But distribution costs climbed even faster, up 66% to $1.66 billion, underscoring the expense of incentivizing partners and platforms to expand adoption.

Despite surging circulation, Circle swung from a $156 million net profit in 2024 to a $70 million loss, Li pointed out.

"Stablecoin may be scaling; stablecoin issuance is a tough business," Li said.

Beating expectations

Still, Circle topped analyst forecasts.

Japanese investment bank Mizuho raised its price target on Circle to $90 from $77 after the stronger-than-expected fourth quarter, citing a boost from prediction markets and growing optimism around "agentic commerce," in which autonomous AI agents transact using Circle's USDC stablecoin.

The firm reiterated its neutral rating on the stock, warning that lower interest rates could still weigh on reserve income.

Analysts Dan Dolev and Alexander Jenkins said Circle’s results topped expectations on both revenue and profit, easing investor concerns after a period of pessimism. Management highlighted prediction and betting platforms, particularly Polymarket, as meaningful drivers of recent USDC growth, pointing to their high-frequency transaction flows and near-term utility.

The analysts noted that company executives also underscored USDC’s emerging role 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, with trading and prediction platforms serving as prominent examples of high-velocity use cases.

The bank now forecasts average USDC in circulation of roughly 123 million in 2027, modeling reserve income of about $3.7 billion and EBITDA of $916 million that year, assuming rate cuts in line with consensus expectations. Applying a 24x EBITDA multiple, a premium to peers such as Visa (V), Mastercard (MA), Coinbase (COIN) and Robinhood (HOOD), the analysts arrived at their new $90 price target.