Meta Platforms' (META) Q2 results and Q3 guidance show how its massive scaling of AI infrastructure is translating into "better-than-expected" gains in engagement and monetization, Morgan Stanley said in a Thursday note.

Advancements in the company's recommendations systems drove 5% and 6% increases in time spent on Facebook and Instagram, respectively, Morgan Stanley analysts said. Engagement facilitated the faster growth of impressions in Q2 and creates even more opportunities for long-term monetization, they said.

Instagram time spent on video increased over 20% year over year globally, and over 20% in the US for Facebook, the analysts noted. The video time combined with improving diffusion models could push more long-term growth, they said.

Meta utilized several technologies to boost ad conversion figures, including Generative Ads Recommendation Systems, personalized ads retrieval engine Andromeda, and AI model architecture Lattice, the analysts said. The benefits from these tools also seem to be compounding, they said.

Morgan Stanley maintained the company's stock rating at overweight and raised the price target to $850 from $750.