Morgan Stanley Slashes Circle Target to $38 as USDC Growth Stalls

Morgan Stanley's $68 target cut resets the Circle debate

Morgan Stanley didn't just trim its view of Circle. It forced a much sharper repricing. The firm cut its target from $106 to $38 and slashed its 2027 and 2028 USDC circulation forecasts by 33% and 44%. That goes beyond a routine estimate tweak: it challenges the growth assumption at the center of Circle's valuation.

The bear case is now explicit

The bearish read is straightforward: if USDC has mostly stalled and the larger circulation model weakens, the stock deserves less of a premium multiple. That risk is sharper because Circle also has weak gross profit margins of just 5.28%. When growth slows, lower-quality economics make valuation resets faster.

Still, the bullish case has not disappeared. Robert W. Baird kept an outperform rating with a $100 price target, and TD Cowen initiated with a Buy rating and an $82 price target. Circle was trading around $59.34 in Monday's premarket session, so investors are not choosing between a clean growth winner and nothing. They are choosing between a hard reset and a market that still includes analysts willing to argue for much more.

Margin mix, not just volume, is damaging the thesis

The deeper problem is not only slower growth. It is what kind of growth is coming through.

Q1 revenue rose, but earnings quality weakened

Circle's first-quarter results show the tension. Revenue still reached $694.13 million, up 20% year over year, but earnings per share were only $0.21 versus expectations. That helps explain why the market is focusing less on headline revenue growth and more on the quality of that growth, especially after Morgan Stanley shifted attention to lower-margin transaction revenue rather than the higher-margin reserve-income model investors had previously emphasized.

Once USDC expansion stalled, the harder question became whether new revenue is as valuable as the old. So far, the evidence still looks mixed.

Compass Point flags a lower-margin growth mix

Recent supply growth has not disappeared, but it is coming from cheaper sources. Compass Point said just under 80% of USDC supply growth since the start of February came from the Sky, Binance, and Ethena platforms. Those relationships can help distribution, but they also reduce Circle's share of interest revenue on USDC reserves.

That is the core mechanism bears care about. Circle still says economics are better on off-platform supply, so if partnership-led supply keeps displacing that higher-margin base, revenue can grow while profitability lags. Compass Point said gross margins could remain under pressure if the trend continues, and it expected EBITDA to fall 19% in the first quarter from the prior quarter.

Scale alone may not support the old multiple

Circle's asset base is still large, with USDC at approximately $70 billion earlier this year. But scale does not fully solve the valuation problem if the income stream attached to that scale is changing. The key watchpoint is whether new USDC supply keeps concentrating on yield-sharing platforms. If it does, the market may keep treating growth as less valuable to earnings power.

Crypto weakness and policy friction amplified the sell-off

Circle was not reacting to one research note in isolation. It also hit a weak tape. Bitcoin slipped below $63,000, crypto-linked equities traded lower pre-market, and Morgan Stanley's downgrade added company-specific pressure to an already fragile setup.

Why the timing made the move worse

The downgrade landed on an already weak backdrop. Circle was near its 52-week low, and the firm had been trading lower along with broader crypto-linked names. In that kind of environment, stocks tied to sentiment and future cash-flow assumptions can be marked down harder than fundamentals alone would suggest.

That is why this setup looks more like a stress test than a routine downgrade. Even the opposing view has a tougher job making headway when Bitcoin is below $63,000, crypto equities are red, and retail sentiment around CRCL has trended bearish.

What could change the setup

The next few sessions matter because policy was already weighing on sentiment. The CLARITY Act was not on the Senate calendar before recess starting August 10, leaving crypto-linked stocks without a near-term catalyst on regulation.