Morgan Stanley cuts Circle price target to $38 as stablecoin growth stirs concerns

• Morgan Stanley cut Circle's price target to $38 from $106, citing slower USDC growth and concerns over its reserve income model.
• The bank lowered its USDC supply forecasts, projecting 33% and 44% reductions for 2027 and 2028, respectively, versus previous estimates.
• Morgan Stanley’s decision came as TD Cowen initiated coverage for Circle with a buy rating and $82 price target.

Circle (CRCL) shares came under pressure on Monday after Morgan Stanley downgraded the company to underweight and sharply cut its price target.

Morgan Stanley lowered its price target for Circle to $38 from $106, citing concerns over slower growth in USDC circulation and increasing pressure on the stablecoin issuer's core revenue model.

Morgan Stanley warns of slower USDC growth

Analyst James Faucette noted that weaker-than-expected growth in USDC's circulating supply could weigh on the company's reserve income, which remains a key source of revenue.

“Utility beyond remittances and stablecoin-linked card spending has yet to gain meaningful traction,” the firm stated.

The bank cut its USDC supply forecasts by 33% for 2027 and 44% for 2028. As a result, Morgan Stanley's GAAP earnings-per-share estimates are now roughly 3% below Wall Street consensus for 2027 and 20% lower for 2028.

"We downgrade Circle, as USDC contraction exposes reserve income sensitivity and points to a lower-margin shift toward transaction revenue," Faucette wrote.

Morgan Stanley noted that competition surrounding USDC could also put additional pressure on Circle. Tokenized money market funds and tokenized bank deposits are gaining traction as alternative ways for investors and institutions to access digital versions of traditional financial assets.

The expansion of blockchain-based money market products by BlackRock also highlights the growing competition for capital in the tokenized financial market. At the same time, newer stablecoin models, including Open USD, could increase the costs associated with maintaining distribution incentives for USDC.

The downgrade adds to concerns raised by other firms such as JPMorgan about the growing competition in the stablecoin market.

TD Cowen maintains positive outlook for Circle

However, other analysts hold positive views concerning Circle. TD Cowen initiated coverage of Circle on Monday with a buy rating and an $82 price target.

The firm argued that the market may be placing too much emphasis on Circle's reserve income while overlooking potential growth in areas such as payments, treasury services, tokenized assets, and developer tools.

Circle shares fell over 3% following Morgan Stanley's downgrade, pushing its year-to-date decline to 24%.