Morgan Stanley downgraded shares of Circle Internet (CRCL) to underweight from equal-weight on Monday and cut its price target to $38 from $106, citing a weaker long-term earnings outlook.
The stock, which slid 6% following the report, has fallen about 30% year-to-date, reflecting growing investor concern over the outlook for USDC, the company’s dollar-backed stablecoin and its largest source of revenue.
Analyst James Faucette said Morgan Stanley expects slower USDC growth as reserve income comes under pressure and Circle shifts toward lower-margin transaction revenue.
“We downgrade Circle, as USDC contraction exposes reserve income sensitivity and points to a lower-margin shift toward transaction revenue,” Faucette wrote in a research note.
The bank reduced its USDC supply forecasts by roughly 33% for 2027 and 44% for 2028, resulting in GAAP earnings-per-share estimates that are about 3% below Wall Street consensus in 2027 and 20% below consensus in 2028.
Morgan Stanley also pointed to rising competition from tokenized money market funds and tokenized deposits, which could reduce both USDC balances and the revenue Circle earns on reserves.