Morgan Stanley Slashes Circle Target to $38 as USDC Competition Comes Into Focus

Morgan Stanley's cut to $38 has put Circle ahead of a high-stakes earnings test

Circle's near-term setup is straightforward: the stock now hinges on whether the next report reflects a rough quarter or the start of a more lasting slowdown in USDC-related earnings.

That is why Morgan Stanley's downgrade matters. The firm cut Circle to "Underweight" and slashed its target from $106 to $38. Circle shares then fell about 6% in premarket trading after the downgrade was published.

The disagreement on Wall Street is now explicit. Bears lean on Morgan Stanley's revised USDC circulation forecasts and argue that reserve income is more exposed than many investors assumed. Bulls have a counterpoint: TD Cowen started that same morning with a Buy rating and an $82 target, leaving a $44 spread between the two calls.

Circle reports ahead of the opening bell, so this is moving from theory to evidence. If management shows that reserve income and USDC demand are holding up better than expected, the market may have overshot lower. If not, the Street-low $38 target could look less like a scare and more like a baseline.

The bear case is about income per dollar, not just slower USDC growth

Competition can pressure the model even if USDC still expands

Morgan Stanley's core argument is not simply that USDC may grow more slowly. It is that competition can reduce how much income Circle earns on each dollar of stablecoin balances. If capital shifts toward tokenized money market funds or tokenized deposits, Circle could see lower effective reserve balances or lower monetization on retained balances. That is a different issue from a plain volume slowdown.

The size of the estimate reset matters. Morgan Stanley cut its USDC circulation forecasts by 33% for 2027 and by 44% for 2028. The same note said those changes pushed its EPS estimates to roughly 3% and 20% below consensus for those years. In practical terms, even continued user or transaction growth may not translate into the same revenue per dollar of stablecoin circulation that investors previously expected.

Why the valuation debate has changed

If the market was valuing Circle mainly as a stablecoin-scale story, this is a meaningful model shift. Competition does not just cap growth; it can weaken the monetization of that growth.

The clearest bull rebuttal is that Circle's revenue mix may matter more than the bear case allows. Management will need to show whether higher-fee businesses are scaling fast enough to offset weaker reserve-income pressure. If they are, Circle could deserve a better multiple than the most bearish calls imply.

So the live question for earnings is not whether USDC faces competition. It is whether Circle can still produce enough earnings from each dollar in circulation to support a premium valuation.

What Wednesday needs to show

After a sharp qualitative reset, three signals matter most.

First, Circle needs at least clear interim proof that the slowdown has not yet broken the quarter. Meeting or beating the Wall Street is looking for a GAAP EPS of $0.16 on re... read would not settle the long-term debate, but it would suggest the earnings pressure is still more forward-looking than reported.

Second, investors have to judge the mix. Bears will argue competition from tokenized money market funds and tokenized deposits is already pressuring reserve-income economics. Bulls will argue Circle can still work if higher-fee businesses grow into the gap. That makes management commentary on revenue mix more important than ever.

Third, and most important, management needs to show that USDC demand is stabilizing rather than slipping toward sustained contraction. Even Morgan Stanley's framework depends on whether slower expansion is turning into a more durable balance hit.

How to read the result

Confirm the bears - A miss versus consensus EPS and revenue - Clear signs that reserve economics are weakening as tokenized cash products gain ground - No convincing offset from fee-heavy businesses

Confirm the bulls - A clean beat versus the $0.16 EPS bar - Commentary that fee growth is absorbing some reserve pressure - Evidence that USDC demand is stabilizing rather than breaking

Positioning If Circle merely looks acceptable, the rerating may stay muted because estimates have already been reset. If the quarter is clean and the mix story improves, the wide gap between the bear and bull calls could leave room for a faster rebound.