Circle Internet Group (CRCL -8.40%) shares have advanced 120% since the company held its initial public offering in June, and Tesla (TSLA -1.69%) shares have climbed 160% since the beginning of 2023. However, JPMorgan Chase analysts expect the monster growth stocks to declined sharply in the remaining months of the year.
- Ken Worthington at JPMorgan has set Circle with a year-end target price of $80 per share. That implies 56% downside from its current share price of $182.
- Ryan Brinkman at JPMorgan has set Tesla with a year-end target price of $115 per share. That implies 64% downside from its current share price of $321.
Importantly, most Wall Street analysts are less bearish, but very few expect material upside in the stocks. The average target on Circle is $181.50 per share, which implies no change from its current price. And the average target on Tesla is $310 per share, which implies 3% downside from its current price.
Here's what investors should know.
Image source: Getty Images.
Circle Internet Group: 56% implied downside
Circle is on a mission to improve the global financial system by enabling a frictionless exchange of value with stablecoins, cryptocurrencies tied to the value of fiat currencies. The company is best known for its U.S. dollar-denominated USDC (USDC -0.00%), the seventh largest cryptocurrency by market value. But Circle is also the issuer of the European euro-denominated EURC (EURC 1.30%).
Those stablecoins are fully backed by fiat currency, and Circle currently generates most of its revenue from interest earned on those reserve assets. However, the company recently expanded into payment processing. The Circle Payments Network will support a broad range of money movement use cases, such as supplier payments, remittances, and payroll.
Circle has yet to report financial results as a public company, but its recently filed Form S-1 shows the following for the first quarter: Revenue increased 59% to $579 million because of a large increase in circulating USDC, offset by lower interest rates. And adjusted EBITDA rose 60% to $122 million. Investors have good reason to believe the company can maintain its momentum.
Today, Stablecoins have a collective market value of $260 billion. But Seaport Research analyst Jeff Cantwell estimates that figure will nearly double to reach $500 billion in 2026, and could eventually reach $2 trillion. In turn, Cantwell thinks Circle's revenue will grow at 25% to 30% per year as the stablecoin market expands.
This stock is hard to value, given Circle has been a public company for only a few months. However, the current multiples of 21 times sales and 189 times forward earnings are not cheap, leaving plenty of room for the share price to fall. I am skeptical about the 56% drop implied by JPMorgan's target price, but investors should limit exposure to Circle stock until the company has been public for a few quarters.
Tesla: 64% implied downside
Tesla has lost significant market share in electric vehicles in the past year because of increased competition and brand damage inflicted by CEO Elon Musk, who has managed to irritate both major U.S. political parties. Tesla accounted for 10% of battery electric vehicle sales through May, down from 16% in the same period last year, per Morgan Stanley.
Tesla reported dismal second-quarter financial results. Deliveries dropped 13%, the second straight decline. In turn, revenue declined 12% to $22 billion, operating margin contracted 2 percentage points, and non-GAAP net income declined 23% to $0.40 per diluted share. Musk also warned the next few quarters could be rough, but he remains upbeat about the long-term narrative.
Musk thinks Tesla can eventually be the most valuable company in the world if it executes on opportunities in autonomous driving and robotics. Tesla recently introduced a robotaxi service in Austin, and Musk says the coverage area may include half the U.S. population by year's end. That would put the company ahead of the market leader Alphabet's Waymo, which operates in only five U.S. cities.
Musk during the earnings call also talked about the humanoid robot Optimus. He expects production to reach 100,000 units monthly within five years, or at least 1 million units annually. He has previously estimated humanoid robots will be a $10 trillion opportunity for Tesla, meaning Optimus may eventually be its largest source of revenue.
Wall Street expects Tesla's earnings to grow at 20% annually over the next three years. That makes the current valuation of 186 times earnings look outrageously expensive. I doubt shares will fall 64%, unless something goes wrong with the robotaxis or robots, but investors should still keep their positions small until Tesla makes more progress in those nascent areas of its business.
