Why Circle Internet Stock Soared Today

Key Points

• The company's stock is up more than 143% since its IPO last month.

• Citi recently initiated coverage of Circle's stock, rating it a buy.

• So-called "Crypto Week" began in Congress today as Bitcoin hit a new all-time high.

• 10 stocks we like better than Circle Internet Group ›

Shares of Circle Internet Group (NYSE: CRCL) jumped today, finishing the day up 9.3%, but were up as much as 10.4% earlier in the day. The spike came as the S&P 500 and Nasdaq Composite rose modestly.

A wave of positive sentiment within the world of crypto helped lift Circle stock just a month after its initial public offering.

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A week of mostly positive news wasn't enough

Bitcoin raced past the $120,000 mark for the first time ever as lawmakers in Washington kicked off "Crypto Week." The U.S. House of Representatives will deliberate on several crypto bills that, if passed, will create a much clearer regulatory framework for crypto, especially in regard to the use of stablecoins by banks and other institutions. Circle, which issues one of the most popular stablecoins on the market, USDC, would benefit greatly from their passing.

Image source: Getty Images.

Circle carries a hefty valuation

Circle's market capitalization is still north of $50 billion. With sales last year of $1.7 billion and net income of just $155.7 million, that is an extremely hefty valuation. There is a ton of growth baked into the current stock price -- too much for my taste.

While I think stablecoins and USDC will grow rapidly in adoption, there are several glaring issues with Circle that make me hesitate. Namely, as part of its partnership agreements, Circle owes the majority of its revenue to its partners, especially Coinbase. Also, the company's revenue is extremely vulnerable to changes in interest rates. If rate cuts come -- and they likely will -- expect Circle's top line to be cut, too.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.