Block's (XYZ) stronger-than-expected performance in Cash App is driven by improved consumer spending trends and rising inflows per user, Morgan Stanley said in a note Tuesday.

Cash App gross profit growth forecast was increased for 2025 to 15% from 14%, citing better consumer spending and employment trends, as well as recent performance improvements, the investment firm said.

Although the Cash App serves mostly low-income customers, recent data shows stronger inflows per active user and better growth, leading to higher confidence in future results, Morgan Stanley said.

Block's expansion in credit products, such as short-term loans, are a potential driver for long-term growth, but the most important metrics are sustained inflows and more direct deposit accounts, according to Morgan Stanley.

Block is making progress in Square Seller distribution, but Cash App's reliance on low-income users still limits its growth potential, Morgan Stanley analysts noted.

The analysts preferred Chime (CHYM) for its stronger product development and primary account relationships, but maintained a positive outlook for Block due to improved fundamentals and favorable industry trends, according to the note.

Morgan Stanley maintained an overweight rating for Block and raised its price target to $73 from $65.

Price: 68.57, Change: -0.84, Percent Change: -1.21