Block's (XYZ) product improvements and better pricing flexibility are already resulting in faster growth and total addressable market expansion, Morgan Stanley said in a Friday research report.

The AI opportunity and accelerating KPIs help build confidence for increased profitability, according to the note.

The workforce reduction is a "big risk," but the company sees larger-language model improvements as a key factor in being able to reduce headcount. Downsizing by 40% can derail plans, but the company is better positioned to absorb organizational disruption, the analysts said.

Fewer employees should improve the gross profit/employee metric, as savings are expected to be $1 billion annually, which could justify an expanded valuation premium, according to Morgan Stanley.

Morgan Stanley upgraded the stock to overweight from equal-weight and boosted its price target to $93 per share from $72.

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