Bernstein Bets $140 on Circle Beyond Reserve Income

Bernstein kept its $140 price target and Outperform rating on Circle Internet Group after the stablecoin issuer posted Q2 profit that beat estimates even as revenue came in soft. Analysts led by Gautam Chhugani called the results a counter to the bear case, arguing the market still underprices Arc, distribution reach and regulatory moats.

Shares hovered near $64, leaving the target implying more than double the recent close. The firm’s stance frames a clear wager: Circle is building settlement rails the Street continues to value mainly as a rate-sensitive reserve business.

What the Quarter Delivered

Circle reported total revenue and reserve income of $701 million, up 7% year over year and slightly below consensus. Net income from continuing operations hit $48 million, a $530 million swing from the year-earlier loss that included heavy IPO-related stock compensation. Diluted EPS came in at $0.18. Adjusted EBITDA rose 8% to $143 million.

That profit swing mattered more to the bull case than the modest revenue miss. Once the one-time compensation drag dropped out, the underlying reserve and services engine showed a clean profit print rather than another accounting loss.

USDC in circulation finished at $73.3 billion, up 19% from a year earlier yet down 5% sequentially. Average circulation set a high at $76.5 billion. On-chain transaction volume surged 151% to $14.8 trillion. Reserve income of $668 million still supplied about 95% of the total, with the reserve return rate at roughly 3.5%, down 66 basis points as rates eased.

The gap between softer end-of-period circulation and record average balances plus surging on-chain volume is the tension inside the print. More dollars moved across the network even as the spot supply figure cooled from its intra-quarter peak.

Other revenue grew 41% to $34 million on subscription and services. Revenue less distribution costs reached $289 million with a 41% RLDC margin. Full details sit in Circle’s second-quarter 2026 results and guidance.

Other revenue remains a small slice beside reserve income, yet the 41% growth rate is the line management is asking investors to watch as Arc and services scale.

Two Fears Still Price the Stock

Investors keep circling the same pair of risks. First, competition among dollar stablecoins and newer yield products could slow USDC share gains. Second, lower policy rates shrink the interest earned on the cash and Treasuries backing the coin.

• Reserve income remains ~95% of revenue, so every basis-point move in SOFR shows up quickly.
• Sequential USDC circulation slipped and some on-chain activity cooled, feeding the narrative of peak growth.
• Mizuho and others flagged the sequential declines and margin pressure even as year-over-year figures looked solid.

Bernstein’s note said those worries miss the distribution network, liquidity depth and regulatory position already in place. The stock’s roughly 20% year-to-date slide left the $140 target looking ambitious to many desks. Yet the firm kept the number after the print.

The two fears reinforce each other in short-term models. Softer rates cut the yield on each dollar of reserves, while any share loss would shrink the reserve base itself. That double bind is why a mixed quarter still reads as confirmation to skeptics even when profit clears the bar.

Bernstein’s counter is that the same quarter also advanced the pieces that loosen that bind over a longer horizon: bank distribution, federal trust status, and a validator set that pulls institutions onto Circle-controlled rails.

Arc Mainnet Puts Institutions on the Validator Set

The clearest piece of the Bernstein wager is Arc. Circle set the public mainnet launch for September 16. The company published its founding validator cohort for Arc the same day as earnings.

Alongside Circle the list includes BlackRock, DTCC, Galaxy, Global Payments, ICE, Mastercard, MoneyGram, SBI Group, Standard Chartered, Sumitomo Corporation and Visa. More than 100 ecosystem and institutional builders already sit on the private mainnet.

• BlackRock is expected to deploy its BUIDL tokenized fund on Arc.
• DTCC plans to enable tokenization of DTC-custodied assets on the network beginning in the second half of 2027.
• BNY and Standard Chartered are expanding integrations spanning custody, minting, FX and repo.

Bernstein noted that current Street models largely exclude future gas fees, staking income and ecosystem partnerships from Arc. Management also guided for roughly $180 million in Arc token presale revenue recognized in 2026. Crowd commentary on X framed the validator list as institutions choosing the rails they will later depend on, not a retail marketing stunt.

The market is underestimating Circle’s long-term growth prospects.

Bernstein wrote that line while pointing to the regulatory position, payments network, blockchain infrastructure and distribution capabilities now lining up.

The cohort mixes asset managers, market infrastructure, card networks and global banks. That mix is what lets Bernstein treat Arc as settlement plumbing rather than another speculative chain launch.

Trust Charters and the Payments Network Expand the Moat

Circle received final OCC approval for Circle National Trust, one of the first federal bank charters for a stablecoin issuer, plus New York DFS approval for a limited-purpose trust. Those moves sit alongside earlier dual-charter work that keeps USDC inside bank-grade rails. Readers tracking the regulatory path can revisit the site’s earlier coverage of the dual trust charters locking USDC into supervised custody.

Federal and state trust status lowers the compliance friction for banks that want to mint, hold and move USDC inside existing custody stacks. That is the practical link between the charter headlines and the payments-network growth figures that followed.

The Circle Payments Network hit $14.7 billion in annualized transaction volume for the trailing 30 days at quarter-end, up 76% quarter over quarter. Enrolled financial institutions rose 29% to 175. BNY expanded minting and redemption inside its digital-asset custody platform. Standard Chartered launched single-onboarding fiat-to-USDC conversion. Partnerships with Nium, JCB, Grupo Bind and others stretch the distribution footprint into new corridors.

Stats snapshot

• $14.7B CPN annualized volume, +76% QoQ
• 175 financial institutions enrolled, +29% QoQ
• ~70% of stablecoin transaction volume captured by USDC in June (Visa Onchain Analytics)
• 900+ paid services live on the Agent Stack, 99.3% of x402 volume in USDC

These pieces turn USDC from a trading collateral token into an always-on settlement asset that banks already custody and move.

The 70% June share of stablecoin transaction volume, read beside the CPN enrollment climb, shows distribution compounding even while end-of-period circulation slipped. Share of flow and share of stock are diverging in ways pure reserve models do not capture cleanly.

Guidance Jump Shows Management Betting on Non-Reserve Lines

Management raised full-year 2026 Other Revenue guidance from $150-170 million to $310-330 million, explicitly including Arc token presale recognition. RLDC margin guidance moved higher to the 41.7-43.7% range. Adjusted operating expense guidance held steady at $570-585 million. Multi-year USDC circulation growth remains pegged at a 40% CAGR through the cycle.

The Other Revenue doubling is the cleanest signal that management expects Arc and services to matter sooner than many models assume. Primary materials remain available in the Circle investor quarterly results archive.

Holding operating expense guidance flat while lifting both Other Revenue and RLDC margin implies operating leverage on the non-reserve stack. The 40% multi-year circulation CAGR stays unchanged, so the guidance revision is not a bet on faster USDC supply growth alone. It is a bet that each dollar of circulation, plus Arc activity, monetizes more ways than reserve yield.

How the $140 Target Sits Against the Tape

Bernstein had already cut the target from $190 to $140 in late July on lower USDC estimates, yet kept Outperform. After the print the firm simply held the line. At a mid-$60s share price the upside remains large. Some desks see the cut-and-hold as cautious; others read the reiteration after a mixed quarter as conviction.

ARK Invest’s earlier buying of Circle shares during weakness sits in the same bullish institutional bucket. That accumulation path is covered in prior reporting on ARK’s earlier accumulation of Circle shares. The common thread is patience on infrastructure that compounds after the rate cycle turns.

CEO Jeremy Allaire framed the quarter as conditions outside the network (rates and crypto trading volumes) while the company advanced the federal trust charter, Arc launch date, Agent Stack and live bank expansions. “We’re only beginning to see what it unlocks,” he said on the release.

X conversation clustered around the same split: short-term traders still treat CRCL as a leveraged rate and stablecoin-share name, while longer-horizon voices treat the validator roster and bank charters as the real story. One high-engagement CoinMarketCap post simply quoted Chhugani’s “counter thesis to the bears” line and drew thousands of views within hours.

The late-July cut already baked in softer USDC assumptions. Holding $140 after a quarter that mixed a revenue soft patch with a profit beat and a guidance lift on Other Revenue keeps the firm aligned with the infrastructure timeline rather than the next SOFR print.

Street Models Still Leave Arc Income Untouched

Bernstein’s core complaint is mechanical. Most models still treat Circle as a reserve-yield vehicle with a stablecoin share overlay. Gas fees, staking income and ecosystem partnerships tied to Arc do not appear in the forward numbers those models publish.

Management’s own guide for roughly $180 million of Arc token presale revenue in 2026 is already large enough to reshape the Other Revenue line. That figure sits inside the raised $310-330 million Other Revenue range and helps explain why RLDC margin guidance moved up in the same breath.

Until Street sheets add those lines, the multiple on reported earnings stays anchored to the 95% reserve-income mix. The September 16 public mainnet is the first date when that modeling gap can start to close with live activity rather than slide-deck promises.

1. Late July 2026 – Bernstein cuts the target from $190 to $140 on lower USDC estimates, keeps Outperform.
2. Q2 print / cohort day – Earnings land beside the founding validator list; firm holds $140.
3. September 16 – Arc public mainnet launch.
4. Second half of 2027 – DTCC aims to enable tokenization of DTC-custodied assets on Arc.

That sequence is why the firm can accept near-term rate noise without abandoning the longer cash-flow story. Each step moves Arc from excluded optionality toward measurable network revenue.

Banks Already Treat USDC as Settlement Cash

The payments-network and custody integrations show USDC behaving less like trading collateral and more like an always-on settlement asset. BNY’s expanded minting and redemption inside its digital-asset custody platform and Standard Chartered’s single-onboarding fiat-to-USDC path are the concrete examples.

Enrolled institutions at 175, up 29% quarter over quarter, and CPN annualized volume at $14.7 billion, up 76% quarter over quarter, measure that shift in flow terms. The Agent Stack’s 900-plus paid services, with 99.3% of x402 volume in USDC, extends the same pattern into automated commerce.

• Charter stack: OCC National Trust plus NY DFS limited-purpose trust keep USDC on bank-grade rails.
• Network stack: CPN volume and enrollment climb while card, corridor and custody partners widen reach.
• Chain stack: Arc validators and planned BUIDL and DTCC work pull tokenized funds and DTC assets onto Circle infrastructure.

Bernstein reads those three stacks together. Distribution reach and regulatory moats are already visible in the operating metrics; Arc is the layer that can attach new fee and staking income to the same institutional relationships.

The Wager Heads Into September

Bernstein’s maintained $140 target is not a claim that reserve income stops mattering. It is a claim that Arc’s September public mainnet, the validator set of systemically important firms, the federal trust charter and the rising non-reserve revenue lines change the duration of the cash flows. If those pieces convert into fees, staking and tokenized-asset settlement, the stock’s current multiple on pure reserve income starts to look incomplete. The next six weeks supply the first public test of that thesis.