Booking Holdings' (BKNG) alternative accommodation business continued to perform in Q2, while its US segment remained the "slowest growing region," Morgan Stanley said in a Wednesday note.

The company reported fiscal Q2 adjusted net income late Tuesday of $55.40 per diluted share, up from $41.90 a year earlier, as revenue rose to $6.80 billion from $5.86 billion. Booking Holdings also guided for Q3 revenue growth of 7% to 9%.

The Q2 results and Q3 guidance were "solid," said Morgan Stanley, noting that the company's alternative accommodation business drove about 50% of room night growth in Q2. The firm also cited a 10% annual increase in Q2 advertising spend, supported by continued strong returns on ad investments.

Low-single-digit growth in the US, however, was "underwhelming" and that segment continues to face macroeconomic headwinds, Morgan Stanley said.

The brokerage said Booking Holdings continues to execute well but flagged longer-term uncertainty around generative AI as a potential risk to valuation multiples

Morgan Stanley lowered its price target on Booking Holdings by 2.5% to $5,650 and reiterated its equal-weight rating.

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