Circle shares fell as Morgan Stanley lowered its price target to $38

Morgan Stanley downgraded Circle, significantly lowering its price target from $106 to $38.

Morgan Stanley downgraded Circle Internet Group's rating to "underweight" from "flat" and significantly lowered its price target from $106 to $38. As the agency lowered its expectations for long-term growth of USDC.

Summary

Morgan Stanley downgraded Circle to "Undersell" and lowered its target price from $106 to $38. The agency lowered its USDC liquidity forecast for 2027 and 2028, citing slowing stablecoin growth and pressure on reserve revenue. Affected by this, Circle's share price fell about 6% in pre-market trading. Meanwhile, TD Cowen covered Circle for the first time and gave it a "Buy" rating with a target price of $82. Morgan Stanley said that despite rising industry adoption rates, stablecoin payments in the real world remain limited. The downgrade comes days after Circle received a New York trust license and the company is about to release second-quarter earnings.

Morgan Stanley expects USDC expansion to slow down

Morgan Stanley lowered its USDC liquidity assumptions by approximately 33% in 2027 and approximately 44% in 2028, believing that stablecoins are expanding less than expected. The agency also lowered its GAAP earnings per share forecast for 2027 to approximately 3% below consensus and to approximately 20% below consensus in 2028.

Analyst James Faucette pointed out that Circle's reserve income business is under increasing pressure as tokenized money market funds and tokenized deposits may compete for funds that should otherwise have stayed in the USDC. The report also believes that Circle's tokenized money market fund USYC is structurally less economically efficient than its reserve income business.

Morgan Stanley further stated that Circle's OpenUSD program introduces shared governance and reserve economy models, increasing the cost of maintaining USDC distribution, while the scale of agency payment activities remains too small to make a meaningful contribution to revenue. The agency estimates that the daily transaction volume of agency payments has dropped to approximately US$41,900, with an average transaction size of approximately US$0.24.

The agency also questioned Circle's long-term growth goals, saying USDC has "not actually grown" since the third quarter of last year, although management has set a goal of achieving an average annual growth of 40% over the market cycle.

Reports that stablecoin payments remain limited

Although payment companies including MasterCard and Stripe have expanded their stablecoin business, Morgan Stanley said commercial adoption has not yet generated significant transaction volume beyond a few use cases. The agency cited McKinsey data as pointing out that the adjusted trading volume of stablecoins in 2025 will be approximately US$35 trillion, but only approximately US$390 billion of this can be identified as real-world payments, and most activities are still related to cryptocurrency transactions and transfers. Related, rather than commercial use.

Morgan Stanley said payment activity remained concentrated on cross-border commercial transactions, remittances and stableco-linked card payments. The report believes that these use cases have not yet produced durable balances and recurring transaction economic benefits sufficient to offset the pressure on Circle's reserve income model.

TD Cowen held the opposite view

TD Cowen gave the opposite assessment, covering Circle for the first time and giving a "Buy" rating with a target price of US$82. The agency believes investors may have underestimated Circle's ability to develop into a financial infrastructure platform that transcends stablecoin issuance.

analyst Bryan Bergin said Circle is building products such as payments, treasury services, tokenized real assets, interoperability and developer infrastructure that are expected to diversify revenue as USDC liquidity increases. TD Cowen also described Circle as a way for investors to access institutional stablecoin adoption and financial infrastructure modernization.

Wall Street's divisions over Circle stocks remain evident. LSEG data shows that of the 30 analysts covering Circle, 16 give a "hold" or "sell" rating, and the remaining 14 recommend a "buy" or "strong buy."

Regulatory progress continues despite investor concerns

The downgrade comes days after Circle strengthened its U.S. regulatory position. Circle obtained a limited purpose trust license from the New York Department of Financial Services through its New York trust entity, Circle New York Trust. Circle said the state-level approval complements the Federal Trust Bank authorization it received from the Office of the Comptroller of the Currency in July. While Circle National Trust, which has been approved by the OCC-approved, will provide digital asset custody services, the company said USDC issuance will continue to be conducted through its New York trust entity and will subsequently gradually transition to its approved regulatory structure.

CEO Jeremy Allaire previously stated that obtaining a New York trust license has been a long-term goal because of the regulatory clarity provided by the NYDFS framework. Circle also said the approval consolidates its relationship with regulators, and the company has been working with NYDFS since becoming the first company to obtain a BitLicense in 2015.

These regulatory milestones have not translated into continued support for stocks. Circle shares closed down 2.54% on July 31. On the same day, Cathie Wood's ARK Invest purchased 109,129 shares of Circle stock through three exchange-traded funds, increasing its exposure to the stablecoin issuer when the company is scheduled to release second-quarter earnings on August 5.

Investors are also focusing on the proposed Clarification Act, which is expected to establish a regulatory framework for the U.S. cryptocurrency industry. Morgan Stanley's latest report shows that despite improved regulatory oversight, future performance will still depend on USDC adoption, trading activity and Circle's ability to generate revenue in addition to reserve revenue.