Toast's (TOST) strong fundamentals are driven by ongoing total addressable market expansion, location growth durability, product innovation, and insulation from artificial intelligence risks, Morgan Stanley said in a Friday research report.

The company raised its earnings before interest, taxes, depreciation, and amortization guidance despite rising hardware costs, while its location growth durability, backed by momentum in enterprise, retails, and growth markets, remains underappreciated, analysts wrote.

The company has demonstrated efficient allocation of capital, driving margin expansion while sustaining growth, the firm noted. It is also focusing on monetizing AI as SaaS gross margins in Q1 surpassed 80% due to early AI-driven efficiencies in client support, according to the note.

The brokerage said it reiterated its overweight rating on the stock and adjusted its price target to $45 per share from $51.

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