Morgan Stanley 'Massively Cuts' Circle's Price Target from $106 to $38… Warns of Stablecoin Growth

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Morgan Stanley has drastically cut the price target for Circle, the issuer of USD Coin (USDC), from $106 to $38, citing concerns about slowing USDC growth and its reliance on reserve asset revenue.

According to investment media outlet FXStreet on August 4 (local time), Morgan Stanley downgraded Circle's investment rating to 'Underweight.' The reason given is that the slower-than-expected growth in the supply of USDC in circulation could also put pressure on the company's core revenue source: interest income from reserve assets.

Analyst James Faucette pointed out that use cases beyond remittances and stablecoin-linked card payments have not yet grown to a significant level. Morgan Stanley lowered its USDC supply estimates by 33% for 2027 and 44% for 2028 compared to previous forecasts. Consequently, Circle's Generally Accepted Accounting Principles (GAAP) earnings per share forecast is now approximately 3% lower than the Wall Street average for 2027 and 20% lower for 2028.

Increased competition was also cited as a burden. Tokenized money market funds and tokenized bank deposits are emerging as alternatives to USDC by providing institutional investors with digital forms of traditional financial assets. The expansion of BlackRock's blockchain-based money market products and the emergence of new stablecoin models like Open USD could also increase incentive costs to maintain USDC circulation, according to the analysis. Morgan Stanley diagnosed that a reduction in USDC supply reveals the sensitivity of reserve asset revenue and could shift Circle's business structure towards lower-margin transaction revenue.

In contrast, TD Cowen initiated coverage on Circle the same day with a 'Buy' rating and a price target of $82. They explained that the market is overly focused on reserve asset revenue, underestimating the growth potential in payments, corporate treasury management, tokenized assets, and developer tools. The $44 difference in price targets between Morgan Stanley and TD Cowen highlights a significant divergence in Wall Street's views on Circle's growth prospects.

Following Morgan Stanley's downgrade, Circle's stock price fell by more than 3%, with its year-to-date decline widening to 24%. The future stock performance will likely depend on whether the growth in USDC supply recovers and whether payment and tokenization businesses can establish themselves as significant revenue streams to replace reserve asset interest income.

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