Bernstein maintained its Outperform rating and $140 price target on Circle after the stablecoin issuer reported second-quarter revenue slightly below expectations but delivered stronger-than-expected profitability. The firm’s central argument is that Circle’s planned Arc blockchain could gradually reduce its heavy dependence on interest earned from USDC reserves, a business model that remains closely tied to Federal Reserve policy.
Circle reported $701 million in second-quarter 2026 revenue, a 7% increase from a year earlier and roughly 2% below consensus estimates, according to the company’s earnings release. Adjusted EBITDA reached $143 million and basic earnings per share was $0.19, both above analyst expectations.
The results showed the continuing strength—and concentration—of Circle’s existing revenue base. Reserve income accounted for about 95% of quarterly revenue, leaving earnings highly exposed to changes in short-term interest rates. Circle earns income on the cash and short-duration government securities backing USDC, then shares part of that income with distribution partners.
Bernstein analysts led by Gautam Chhugani said Circle’s growth case increasingly rests on building revenue sources beyond reserve yields. Those efforts include transaction fees, commercial partnerships, the Circle Payments Network and Arc, Circle’s planned public blockchain.
Circle shares closed Wednesday at $63.28, up 0.05% for the session. Bernstein’s $140 target represents roughly 121% upside from that closing price, though the target assumes Circle can expand its business while managing the pressure that lower rates would place on reserve income.
Rate policy remains the immediate earnings variable
Circle ended the quarter with $73.3 billion of USDC in circulation, down 5% from the previous quarter but 19% higher than a year earlier. The year-over-year increase indicates that USDC remains substantially larger than it was in 2025, while the quarterly decline limits the amount of reserve assets generating income in the near term.
The company’s revenue model makes the level of interest rates particularly consequential. The Federal Reserve kept its benchmark federal funds rate in a 3.50% to 3.75% range at its July 2026 meeting. If the Fed begins cutting rates, yields on the assets in Circle’s reserve portfolio would generally decline as securities mature and are replaced, reducing a major source of revenue.
That sensitivity creates a more immediate challenge than competition alone. Circle can increase USDC circulation, but lower portfolio yields could offset part of the benefit from a larger reserve base. The second-quarter results illustrate the scale of the exposure: with reserve income contributing roughly 95% of revenue, rate movements can affect earnings before newer products have time to produce meaningful fees.
Bernstein’s continued positive rating suggests the firm sees Circle’s expansion plans as capable of offsetting part of that risk over time. The timing remains important. Any decline in rates during the coming policy meetings would affect reserve economics before Arc has established transaction activity or a sizable developer ecosystem.
Arc is designed to add fee-based revenue
Circle plans to launch the Arc public mainnet on Sept. 16. The network would give the company infrastructure through which it could earn blockchain-related fees, rather than relying principally on returns generated by reserve assets.
A public blockchain is a network where transactions and smart-contract activity are recorded across a distributed set of computers. For Circle, Arc could connect USDC issuance, payments, tokenized financial products and institutional settlement services on infrastructure associated with its own ecosystem.
Circle has named BlackRock, DTCC, Galaxy, Global Payments, ICE, Mastercard, MoneyGram, SBI Group, Standard Chartered, Sumitomo Corporation and Visa as founding validators for Arc. Validators help operate and secure a blockchain by participating in the process that confirms network activity.
The list brings together asset management, market infrastructure, card payments, remittances, banking and trading firms. That range could give Arc access to potential commercial use cases beyond cryptocurrency trading, including cross-border payment flows and financial-market settlement. It does not guarantee that those organizations will route significant activity through the network, but it gives Circle a more established starting group than a typical new blockchain launch.
Circle has also raised its 2026 outlook for other revenue and for revenue less distribution costs, according to Bernstein. The updated guidance includes expected recognition of $180 million in Arc token presale revenue. That item could provide a material contribution to non-reserve revenue in 2026, though it differs from recurring network fees that would depend on sustained use after the mainnet launch.
Payments network and bank approval broaden Circle’s plan
Alongside Arc, Circle continued building the Circle Payments Network during the quarter. The project is intended to connect financial institutions and payment providers using stablecoin-based settlement, potentially creating additional transaction and partnership revenue.
Circle also said it received national trust bank approval during the quarter. The authorization supports the company’s effort to operate more directly within the U.S. financial system and could strengthen its position with institutions seeking regulated stablecoin and custody arrangements.
The combination of a trust bank structure, a payments network and a proprietary public blockchain places Circle’s strategy closer to financial infrastructure than a business focused only on issuing USDC. Each initiative addresses a different part of the company’s current concentration risk: payments could generate service revenue, banking approval could support regulated operations, and Arc could create on-chain fee opportunities.
For now, the quarterly numbers show that Circle remains primarily a reserve-income business. The September Arc launch will be an early test of whether the company can turn its large USDC base and institutional relationships into a more diversified revenue model before lower interest rates compress the returns generated by its reserves.
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