Morgan Stanley just wiped $68 off its price target for Circle Internet Group. The investment bank downgraded the company from Equal Weight to Underweight and slashed its valuation from $106 to $38 per share, sending the stock down 6% in premarket trading on Monday. The kicker: USDC, Circle's flagship stablecoin, won't grow nearly as fast as anyone thought.
The bank cut its circulation forecasts by a third for 2027 and nearly half for 2028. That's not a minor tweak. It's an admission that stablecoins, once seen as the next great fintech frontier, are hitting real-world adoption ceilings. Real payments using stablecoins remain surprisingly small despite all the hype. Tokenized money market funds and tokenized deposits are now competing with USDC for the same pool of capital that would have stayed locked in the stablecoin ecosystem.
When reserve income becomes the problem
Circle's business model depends heavily on keeping USDC circulating. The company earns from reserves, basically the dollars backing each token. But as growth slows and competition tightens, that income stream faces pressure. Morgan Stanley lowered its earnings-per-share estimates to 3% below consensus for 2027, then to 20% below consensus just one year later. That's a cliff.
Analyst James Faucette flagged another threat: Circle's OpenUSD initiative, which introduced shared governance and reserve economics, increases the cost of maintaining USDC distribution. The company's tokenized money market fund, USYC, has structurally weaker margins than the core reserve business. And agentic payment activity, the kind of autonomous transaction flows that were supposed to unlock massive volume, remains too small to meaningfully move the needle on revenue.
Not everyone agrees
The same day Morgan Stanley published its downgrade, TD Cowen initiated coverage with a Buy rating and an $82 price target. That's more than double Morgan Stanley's view, though still below the old consensus. Circle also caught a break: it secured a New York trust charter days before the downgrade hit, a regulatory win that could help rebuild confidence ahead of second quarter earnings.
The real question is whether Circle's long-term story is broken or just delayed. Morgan Stanley thinks the stablecoin thesis has matured faster than anyone planned. Slower adoption, tighter margins, and new competition from tokenized cash products reshape the economics. Circle is no longer a pure growth story waiting to explode. It's increasingly a utility player fighting for share in a slower-growing market.
This article is for informational purposes only and does not constitute financial advice. Always conduct your own research before making investment decisions.