Applied Materials (AMAT) delivered several upside surprises in fiscal Q1 results, signaling a "leap forward" rather than gradual gains, Morgan Stanley said Friday in a report.

The combination of a Q1 beat, stronger Q2 guidance and a 20% gain in systems revenue signal "a leap, not merely a step, toward shifting the narrative around the stock in a more constructive direction," the report said.

Applied Materials' outlook points to at least 30% growth in memory and advanced logic chips, Morgan Stanley said. The company is benefiting from increased 3-nanometer production at Taiwan Semiconductor Manufacturing (TSM), rising spending on DRAM, and strong demand for equipment used in high-bandwidth-memory chips, the report said.

Morgan Stanley raised its calendar-year earnings and revenue forecasts and reiterated its overweight rating on the stock, lifting its price target to $420 from $364.

Applied Materials shares rose 9.9% in Friday trading.

Price: 361.23, Change: +32.84, Percent Change: +10.00