Morgan Stanley has downgraded Circle Internet Group to Underweight and cut its price target to $38 from $106, arguing that slowing growth in the company’s USDC stablecoin and intensifying competition across digital dollar products could materially weaken its long-term earnings outlook.
The downgrade represents one of the most bearish calls yet from a major Wall Street firm on Circle, whose shares have attracted significant investor attention since the company became publicly traded. Following the research note, Circle’s stock fell about 6% in early trading as investors reassessed the outlook for the issuer of the world’s second-largest US dollar-backed stablecoin. Morgan Stanley analyst James Faucette said the bank expects USDC circulation to grow much more slowly than previously forecast, reducing one of Circle’s most important revenue sources.
Circle earns a substantial portion of its income from interest generated on the reserves backing USDC. If fewer stablecoins are in circulation, the company holds fewer reserve assets, limiting the interest income that has historically driven profitability. The brokerage also warned that Circle is gradually becoming more reliant on transaction-related revenue, which it believes carries structurally lower margins than reserve income.
USDC Growth Expectations Cut Sharply
As part of the downgrade, Morgan Stanley reduced its USDC circulation forecasts by approximately 33% for 2027 and 44% for 2028. Those lower assumptions prompted the bank to cut its earnings projections for Circle to roughly 3% below Wall Street consensus in 2027 and 20% below consensus in 2028. The bank also highlighted increasing competition from tokenized money market funds, tokenized bank deposits and emerging stablecoin models that distribute reserve economics across multiple participants.
Morgan Stanley specifically cited Open USD, a recently introduced stablecoin framework with shared governance and reserve economics, arguing that such models could force Circle to spend more on distribution incentives while making it harder to maintain USDC’s market share. In addition, the research note questioned the pace of real-world stablecoin payments adoption. Morgan Stanley said Circle’s agentic payments initiative currently processes only modest transaction volumes with a very low implied average transaction size, suggesting commercial adoption remains at an early stage.
Analyst Views Remain Divided
Despite Morgan Stanley’s downgrade, Wall Street remains divided on Circle’s long-term prospects. On the same day, TD Cowen initiated coverage of the company with a Buy rating and an $82 price target, arguing that Circle is evolving beyond a stablecoin issuer into a broader financial infrastructure platform. The firm pointed to opportunities in payments, developer services and blockchain-based financial infrastructure as potential drivers of future growth.
Circle has also continued expanding its regulatory footprint, recently securing a New York trust charter while preparing to report second-quarter earnings later this week. The contrasting analyst opinions illustrate the uncertainty surrounding the stablecoin industry’s next phase of development. Supporters believe growing regulatory clarity and institutional adoption will expand demand for regulated digital dollars. Skeptics argue that competition is increasing just as reserve-based earnings become more sensitive to slower stablecoin growth.
For investors, Morgan Stanley’s sharply reduced $38 price target reflects a broader concern that Circle’s premium valuation may no longer be justified if USDC’s expansion continues to moderate. With earnings approaching and competition intensifying across the stablecoin market, the company’s next financial results are likely to play a key role in determining which view ultimately prevails.