Morgan Stanley downgraded Circle Internet Group (CRCL) to underweight from equal weight on August 3, just days before the company's second-quarter earnings report scheduled for August 5. The brokerage also slashed its price target from $106 to $38, citing a weaker long-term earnings outlook.

CRCL shares fell as much as 6% during the August 3 session before closing 3.5% lower at $60.41.

Circle is set to report its second-quarter results on August 5, with management hosting a webcast at 8:00 a.m. Eastern Time to discuss the results and business developments. The report will be Circle's first full quarterly earnings disclosure since its public listing on the New York Stock Exchange, making it a closely watched benchmark for investors assessing the company's post-IPO trajectory.

Morgan Stanley's Downgrade Rationale

Morgan Stanley analyst James Faucette said the firm expects slower growth in USDC, as declining reserve income and a shift toward lower-margin transaction revenue weigh on profitability. Circle earns a substantial portion of its revenue from the yield generated on the reserves backing USDC — primarily short-term U.S. Treasury bills — meaning that interest rate trends directly influence its profitability.

The bank reduced its USDC supply forecasts by approximately 33% for 2027 and 44% for 2028. It also projects Circle's GAAP earnings per share to come in about 3% below the Wall Street consensus for 2027, and 20% below the 2028 consensus.

Morgan Stanley further cited increasing competition from tokenized money market funds, tokenized deposits, and the recently introduced Open USD stablecoin model. USDC ranks as the second-largest stablecoin by market capitalization, trailing Tether's USDT, and the competitive landscape is intensifying as traditional financial institutions and blockchain-native protocols alike launch dollar-pegged digital asset alternatives. The bank said these developments could pressure USDC balances, reduce reserve-related revenue, and increase the cost of maintaining distribution incentives, as reported by Yahoo Finance.

Additionally, Morgan Stanley expressed skepticism about Circle's agentic payments initiative, which targets automated, AI-driven transactions. The bank noted that transaction volumes have dropped to approximately 41,900 transactions per day, with the implied average transaction size falling to $0.24, indicating limited commercial adoption.

Technical Analysts See Potential Breakout

While Morgan Stanley turned bearish, some market analysts pointed to bullish chart patterns forming ahead of the earnings release.

Market analyst Donald Dean said CRCL is trading within a descending wedge pattern. According to his post on X, a move above the $62 high-volume price zone could confirm a bullish breakout, with the next target at $77. Dean added that if CRCL fails to hold its current structure and breaks lower, $50 would become the next major support level to watch.

Another analyst, known as 'Freedom by 40,' noted on X that Circle stock is approaching a key technical level. The analyst said the stock's price action is tightening while still showing a corrective pattern. CRCL has held up relatively well despite the broader market selloff over the past month, a resilience the analyst described as a strong point for both the stock and the overall crypto sector.

Wall Street Divided Ahead of Earnings

Wall Street analysts remain split on Circle's outlook ahead of the firm's Q2 earnings on August 5. According to a Yahoo Finance report, TD Cowen analyst Bryan Bergin initiated coverage with a Buy rating and an $82 price target. Bernstein analyst Gautam Chhugani maintained an Outperform rating, though he lowered his target from $190 to $140.

Meanwhile, Cathie Wood's ARK Invest continued to increase its exposure to Circle. On July 31, the investment firm purchased 109,129 CRCL shares, valued at approximately $6.7 million, across its ARKK, ARKW, and ARKF funds. The divergence among analysts reflects broader uncertainty about how to value a company whose revenue model bridges traditional fixed-income yield with blockchain-based payment infrastructure.