Morgan Stanley Downgrades Circle to Underweight, Cuts Price Target to $38 on Slower USDC Growth
Key Takeaways
- •Morgan Stanley downgraded Circle to underweight and reduced its price target from $106 to $38, resulting in a roughly 6% share price decline.
- •The bank significantly lowered its USDC supply forecasts and warned that Circle may face pressure from lower-margin transaction revenues.
- •Legacy financial institutions like BlackRock are entering the tokenized finance space, increasing competition for digital dollar ecosystems.
- •Analyst opinions are divided, with JPMorgan holding a bearish stance while TD Cowen issued a buy rating with an $82 target.
Morgan Stanley has downgraded Circle, the issuer of the USDC stablecoin, from equal-weight to underweight and slashed its price target from $106 to $38, citing weaker long-term expectations for USDC growth, reserve income, and margins. Circle shares fell approximately 6% following the report.
Analyst James Faucette led the downgrade, pointing to slower projected expansion in USDC's circulating supply and intensifying competition across the digital dollar ecosystem. The move comes as investors reassess Circle's long-term earnings trajectory amid a shifting competitive landscape.
Morgan Stanley Lowers Earnings Forecast
USDC — the second-largest stablecoin by circulating supply, behind Tether's USDT — remains Circle's primary revenue driver, according to the bank. Circle earns the bulk of its income from interest on the cash and short-term government securities backing each USDC token in circulation, meaning revenue is closely tied to both the total supply of USDC outstanding and the prevailing interest-rate environment. However, Morgan Stanley anticipates that decelerating growth in circulating supply will reduce income generated from the reserves backing the stablecoin.
Faucette indicated that Circle may need to lean more heavily on transaction revenue, which carries thinner margins than its traditional reserve-based earnings model.
The bank trimmed its USDC supply forecasts by roughly 33% for 2027 and 44% for 2028. As a result, Morgan Stanley's earnings estimates now stand approximately 3% below Wall Street consensus for 2027 and about 20% below consensus for 2028.
Competition Intensifies Across Tokenized Finance
Morgan Stanley also flagged mounting competition within the stablecoin and tokenized finance sectors. The bank identified tokenized money market funds, tokenized bank deposits, and Open USD as increasingly viable alternatives to USDC.
On Monday, BlackRock broadened its tokenized finance footprint by introducing two blockchain-based money market products. The move by the world's largest asset manager underscores a broader push by legacy financial institutions into blockchain-based dollar instruments, a trend that Morgan Stanley suggested could heighten competition for capital flowing into digital dollar ecosystems.
The bank further scrutinized Circle's advancement in agentic payments. According to its research, daily transaction volume in this area averaged roughly $41,900, with an implied average payment of approximately 24 cents.
Analysts Remain Divided
The Morgan Stanley downgrade follows a recent bearish call from JPMorgan, which argued that Circle's revised agreement with Hyperliquid undermined USDC's economic model while escalating competitive tensions with Coinbase.
Not all Wall Street firms share this pessimistic view, however. TD Cowen initiated coverage of Circle with a buy rating and an $82 price target, highlighting potential opportunities in payments, treasury services, tokenized assets, and developer tools.
Following Morgan Stanley's report, Circle's approximately 6% share-price decline added to year-to-date losses, as investors weighed evolving earnings expectations against a rapidly changing competitive environment in the stablecoin market.