Circle slides after Morgan Stanley downgrade, cut in price target
Morgan Stanley downgraded Circle Internet to underweight and lowered its price target to $38 from $106, citing a weaker long-term earnings outlook.
Intelligence analysis by Llama
Morgan Stanley downgraded Circle Internet to underweight and lowered its price target to $38 from $106, citing a weaker long-term earnings outlook. The bank cut forecasts for supply of the company's USDC stablecoin through 2028, citing weaker reserve income and lower-margin revenue.
Imagine you have a special kind of money called USDC that's tied to the value of the US dollar. Circle Internet is the company that helps make and manage this special money. But now, a big bank called Morgan Stanley is saying that Circle Internet might not be as good at making and managing this money as it used to be. This is because other companies are starting to make their own special money, which could make it harder for Circle Internet to keep up.
Analysis
A $60B Vote of Confidence
Circle Internet's (CRCL) stock slid 6% after Morgan Stanley downgraded the company to underweight and cut its price target to $38 from $106. The bank cited a weaker long-term earnings outlook, driven by slower USDC growth, weaker reserve income, and lower-margin revenue. Morgan Stanley 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. The bank 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. BlackRock's expansion into tokenized finance with the debut of two blockchain-based money market products designed to serve both traditional investors and the growing stablecoin industry is a significant threat to Circle's dominance. The stablecoin market is becoming more competitive following the introduction of Open USD, a new stablecoin model with shared governance and reserve economics. Morgan Stanley said that structure could make it more expensive for Circle to maintain USDC distribution incentives. The bearish call follows a downgrade from JPMorgan, which argued that Circle's revised agreement with crypto exchange Hyperliquid weakened USDC's economics. JPMorgan said the arrangement highlighted a growing 'prisoner's dilemma' between Circle and Coinbase (COIN), where both companies may increasingly compete to expand USDC distribution at the expense of profitability. The downgrade reflects growing investor concern over the outlook for USDC, the company's dollar-backed stablecoin and its largest source of revenue. The stock has fallen about 30% year-to-date, reflecting investor concerns over the company's ability to maintain its market share in the face of increasing competition.
Key points
- Morgan Stanley downgraded Circle Internet to underweight and lowered its price target to $38 from $106.
- The bank cited a weaker long-term earnings outlook, driven by slower USDC growth, weaker reserve income, and lower-margin revenue.
- Morgan Stanley reduced its USDC supply forecasts by roughly 33% for 2027 and 44% for 2028.
- The bank also pointed to rising competition from tokenized money market funds and tokenized deposits.
If Circle Internet can adapt to the changing market and find new ways to make and manage USDC, it could potentially recover from this downgrade and continue to grow its market share.
However, if Circle Internet is unable to adapt to the changing market and maintain its market share, it could lead to a significant decline in its stock price and potentially even a bankruptcy.
