Spotify Technology's (SPOT) 14% year-to-date share decline presents an "attractive" buying opportunity ahead of planned product launches, including new artificial intelligence features, Morgan Stanley said in a report Monday.

The firm expects Spotify to add about 26 million "Premium" subscribers in 2026 and 2027, supported by stronger engagement, pricing power and expansion across audiobooks, video podcasts, ticketing and "GenAI mixing tools," according to the report.

An "improved free tier" could slow near-term conversion to paid subscriptions but should widen Spotify's long-term customer funnel, the investment bank said. Recent credit card data also showed less subscriber "churn" following Spotify's February "price hike" than after its previous increases, according to the report.

The firm said slower streaming growth reported by Universal Music Group does not indicate that Spotify's business is weakening, while Spotify's potential participation in music paywall changes in India could also improve paid conversion and support Premium subscriber growth in international markets over time.

The analyst expects free cash flow to grow at about a 20% annual rate over the next three to five years, reaching roughly $35 per share by 2030, according to the report.

Morgan Stanley reiterated an overweight rating on Spotify and raised its price target to $640 from $610.

Price: 500.24, Change: +0.30, Percent Change: +0.06