The Federal Reserve finally cut its benchmark interest rate by 25 basis points, from a range of 4.25%-4.50% to 4.00%-4.25%, on Sept. 17. That marked its first rate cut of 2025. The Fed also penciled in two more rate cuts by the end of the year, which would match its three rate cuts in 2024, but only one additional rate cut for 2026. It expects those rate cuts to temper inflation, which remains elevated; and spur job growth, which has decelerated.
When interest rates decline, investors often rotate toward riskier investments. One stock that is well-poised to capitalize on that shift is Robinhood Markets (HOOD 1.33%), the online brokerage that roped in a new generation of retail investors with its commission-free trades.
Let's review the five ways lower rates will drive its stock higher.
Image source: Getty Images.
1. Lower rates will reduce the value of idle cash
When interest rates rose in 2022 and 2023, many investors parked their idle cash into risk-free CDs and Treasury bills that were paying out 4%-5% yields. That was an easy way to ride out the volatility across the broader market during those two tumultuous years. But as interest rates decline, those fixed-income yields will shrink. When that happens, investors will likely buy more growth stocks, dividend stocks, and cryptocurrencies on Robinhood -- and its trading volumes will soar.
NASDAQ: HOOD
Key Data Points
2. Cryptocurrency trades on Robinhood will keep soaring
Robinhood generated 37% of its transaction revenue (and 22% of its total revenue) from cryptocurrency trades in the first half of 2025. That segment has grown rapidly over the past year as more investors pivot toward the crypto market again.
|
Metric |
Q2 2024 |
Q3 2024 |
Q4 2024 |
Q1 2025 |
Q2 2025 |
|---|---|---|---|---|---|
|
Cryptocurrency trading revenue growth (YOY) |
161% |
165% |
700% |
100% |
98% |
Data source: Robinhood. YOY = Year-over-year.
Blue-chip cryptocurrencies like Bitcoin and Ethereum could also become more attractive hedges against the devaluation of the U.S. dollar, which should soften as interest rates decline. More investors could also invest in stablecoins, which can be lent out for higher yields than traditional savings accounts or CDs.
3. Lower lending costs should spur more trading on Robinhood
Robinhood, like other online brokerages, earns interest income from its margin loans and cash sweep accounts. Its margin interest accounted for 12% of its top line in the first half of 2025. It also "sweeps" its excess cash into its partner banks to earn interest, and that sweep interest accounted for 6% of its revenue. The Fed's rate cuts will reduce the interest it generates from its loans and sweep accounts, but they should simultaneously spur more margin loans and active trades.
So as interest rates decline, Robinhood's customers will likely execute more trades on margin accounts to chase high-flying stocks and cryptocurrencies. That trend should boost its total transaction revenues, which accounted for 58% of its top line in the first half of 2025, and more than offset its slower growth in interest income.
4. Lower rates could make Robinhood's Gold tier more attractive
Robinhood launched its subscription-based Gold tier nine years ago. For $5 a month or $50 a year, its members get $1,000 of interest-free margin, reduced margin rates, higher interest rates on their idle cash, bonuses on taxable deposits and IRA contributions, higher limits on instant deposits, access to Level II trading data, and other perks. Some of those benefits -- especially higher yields on uninvested cash -- could become more appealing as interest rates decline.
In the second quarter of 2025, its Gold subscriber number grew 76% year over year to 3.5 million. In the first half of 2025, its subscription revenue surged 67% year over year to $82 million and accounted for 4% of its top line. That percentage could rise over the next year and reduce its dependence on its more volatile trading and interest revenues.
5. Lower rates will drive more growth investors to Robinhood's stock
From 2020 to 2024, Robinhood more than doubled its number of funded customers from 12.5 million to 25.2 million, its assets under custody more than tripled from $63 billion to $193 billion, and its revenue grew at a stunning CAGR of 32.5%. It accomplished that growth even as higher interest rates temporarily throttled its trading activity in 2022.
From 2024 to 2027, analysts expect Robinhood's revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow at a CAGR of 22% and 30%, respectively. With an enterprise value of $108.6 billion, it still looks reasonably valued -- but not a screaming bargain -- at 38 times next year's adjusted EBITDA.
However, lower interest rates generally drive investors to pay higher premiums for higher-quality stocks. So even though Robinhood's stock has already rallied more than 440% over the past 12 months, the Fed's rate cuts could drive it even higher.
