Block (XYZ) is seeing faster growth and margin expansion as momentum improves across Square and Cash App, supported by larger merchants, stronger lending activity and rising profitability, Morgan Stanley said in a Friday note.

The firm said Square US gross payment volume accelerated to 8.2% from 7% in the previous quarter.

Morgan Stanley said Cash App gross profit grew by 38% year over year, helped by consumer lending originations that rose 82% to $17.6 billion.

Analysts also noted artificial intelligence tools are improving internal productivity and product velocity, with production code changes per engineer up more than 2.5 times from January to April.

Morgan Stanley maintained the company's overweight rating and raised its price target to $96 from $93.

Block shares were up 5.5% in Friday trading.

Price: 73.92, Change: +3.78, Percent Change: +5.38