Morgan Stanley downgraded Circle Internet to underweight on Monday and slashed its price target from $106 to $38. The stock dropped 6% on the news.
USDC, Circle's dollar-backed stablecoin, faces mounting pressure. The bank cut USDC supply forecasts by roughly 33% for 2027 and 44% for 2028, citing weaker reserve income. That translates to earnings per share estimates running 3% below Wall Street consensus next year and 20% below in 2028.
Analyst James Faucette flagged a fundamental shift. Circle is moving away from high-margin reserve income toward lower-margin transaction revenue. "USDC contraction exposes reserve income sensitivity," he wrote, adding the company's earnings outlook has deteriorated significantly.
Competition is intensifying. BlackRock just launched two blockchain-based money market funds designed for both traditional investors and the stablecoin industry. These tokenized cash products could siphon balances directly away from USDC, eating into Circle's reserve revenue stream.
Circle's newer ventures aren't moving the needle either. Agentic payments, the company's foray into autonomous transaction networks, is generating just $41,900 in daily volume with an average transaction size of 24 cents. That suggests limited commercial traction so far.
The stablecoin space itself is reshuffling. Year-to-date, Circle stock has fallen about 30%, reflecting broader investor anxiety about USDC's competitive position and the company's path to sustained profitability.
This analysis is for informational purposes only and does not constitute financial advice. Do your own research before making any investment decisions.
