Circle Internet's stock drops after Morgan Stanley lowers its rating and price target due to concerns over USDC's growth and competition.
Circle Internet's shares fell sharply after Morgan Stanley downgraded its rating to underweight and slashed the price target from $106 to $38, citing concerns about the company's long-term earnings prospects.
USDC Growth Challenges and Increased Competition
The downgrade resulted in a 6% decline in Circle's stock, which has already decreased by 30% this year. Morgan Stanley raised alarms about a projected slowdown in the growth of USDC, Circle's primary dollar-pegged stablecoin, which is a key revenue driver.
Analyst James Faucette highlighted that the firm's forecasts for USDC supply have been significantly lowered, with estimates down by about 33% for 2027 and 44% for 2028. This reduction impacts earnings-per-share predictions, which are now projected to fall short of Wall Street's consensus by 3% in 2027 and 20% in 2028.
Faucette stated, "We downgrade Circle, as USDC contraction exposes reserve income sensitivity and points to a lower-margin shift toward transaction revenue." He noted that rising competition from new tokenized cash products and alternative stablecoin models could exert additional pressure on Circle's earnings.
Morgan Stanley pointed out that BlackRock's recent launch of two tokenized money market products targeting both traditional investors and the stablecoin sector could negatively impact USDC balances and the income Circle earns from its reserves.
Furthermore, the bank expressed doubts about Circle's efforts to expand into agentic payments, noting a drop in transaction volumes to an average of about $41,900 daily and an average transaction size of around 24 cents, indicating limited market penetration.
The stablecoin market is becoming increasingly competitive, especially with the introduction of Open USD, a stablecoin model featuring shared governance and reserve economics. Morgan Stanley warned that this model might lead to higher costs for Circle in sustaining USDC distribution incentives.
This pessimistic outlook from Morgan Stanley follows a similar downgrade by JPMorgan, which suggested that Circle's revised deal with crypto exchange Hyperliquid has negatively affected the economics of USDC, highlighting a competitive issue between Circle and Coinbase regarding USDC distribution that could hurt profitability.
