Morgan Stanley downgraded Circle to underweight and slashed its price target to $38 over weaker long-term USDC expectations. The bank lowered USDC supply forecasts for 2027 and 2028, expectin
Circle shares fell after Morgan Stanley downgraded the stablecoin issuer to underweight from equal-weight and reduced its price target to $38 from $106. According to analyst James Faucette, the bank lowered its outlook because it expects slower USDC growth, weaker reserve income, and increasing competition across the digital dollar market. The downgrade came as investors continued reassessing Circle's long-term earnings prospects.
Morgan Stanley said USDC remains Circle's largest revenue driver. However, the bank expects slower expansion in circulating supply to reduce income generated from reserve assets.
According to Faucette, Circle could increasingly rely on transaction revenue instead of reserve income. He added that transaction revenue carries lower margins than the company's traditional earnings model.
The bank also reduced its USDC supply forecasts by about 33% for 2027 and 44% for 2028. Consequently, Morgan Stanley's earnings estimates now sit roughly 3% below Wall Street consensus for 2027 and 20% below consensus for 2028.
Morgan Stanley also highlighted rising competition across the stablecoin and tokenized finance sectors. The bank pointed to tokenized money market funds, tokenized bank deposits, and Open USD as growing alternatives.
On Monday, BlackRock expanded its tokenized finance offering by launching two blockchain-based money market products. Morgan Stanley said those products could increase competition for capital flowing into digital dollar ecosystems.
The bank also questioned Circle's progress in agentic payments. According to its research, daily transaction volume averaged about $41,900, while the implied average payment measured roughly 24 cents.
The downgrade followed a recent bearish assessment from JPMorgan. That bank argued Circle's revised agreement with Hyperliquid weakened USDC's economic model while increasing competitive pressure with Coinbase.
However, not every Wall Street firm shares that outlook. TD Cowen initiated coverage of Circle with a buy rating and an $82 price target, citing opportunities in payments, treasury services, tokenized assets, and developer tools.
Following Morgan Stanley's report, Circle shares fell about 6%. The decline added to the stock's year-to-date losses as investors weighed changing earnings expectations against increasing competition in the stablecoin market.
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