Overview
Morgan Stanley moved Booking Holdings (NASDAQ:BKNG) to an Overweight rating from Equalweight on Monday and placed a $5,500 target on the shares. The stock is trading at $3,870.83, close to its 52-week low, after a 28% decline over the past six months. InvestingPro analysis referenced in research notes suggests Booking may be undervalued at current levels, with estimated Fair Value implying significant upside and landing the company among the platform’s most undervalued names.
Why the upgrade
The firm’s upgrade rests on a view that emerging artificial intelligence travel products are funneling user interest and click-throughs to established online travel agency (OTA) apps and websites, rather than completing purchases independently. Morgan Stanley analyst Brian Nowak observed that early AI-powered travel tools appear to be directing traffic toward OTA digital properties instead of acting as the direct merchant on transactions.
Morgan Stanley pointed out that major technology companies, including Alphabet, have publicly signaled reluctance to act as the merchant of record for travel purchases. The research team said that this unwillingness to assume payment risk and ongoing customer service duties has existed for years and is unlikely to reverse, a dynamic that benefits firms already handling those responsibilities.
Positioning and economics
The brokerage argued Booking’s role as the merchant of record combined with its ability to capture consumer data makes the company well positioned to remain central to online travel distribution. Morgan Stanley likened the anticipated structure to paid search mechanics where OTAs incorporate inventory into platforms, bid for traffic and then convert that traffic into direct customers.
InvestingPro data cited by the firm highlights Booking’s robust profitability, with an 87% gross profit margin referenced as evidence of competitive strength. The analyst also pointed to Booking’s multi-decade execution record, noting more than 20 years of navigating similar competitive settings.
Company results and analyst reactions
Booking recently reported a strong fourth quarter, where gross bookings exceeded consensus forecasts by $1 billion and room nights rose 9%, with both revenue and EBITDA beating expectations. Despite those results and Morgan Stanley’s upgrade, several other brokerages have revised targets lower.
Benchmark trimmed its target to $5,600 from $6,400, citing valuation concerns. DA Davidson and TD Cowen each reduced targets to $6,000; DA Davidson noted uncertainty tied to AI while TD Cowen flagged higher advertising expenses as a pressure on the model. Morgan Stanley’s prior price target for Booking had been $6,150.
Market context and near-term headwinds
The broader travel sector has experienced downward pressure, with shares, including Booking’s, underperforming amid investor concerns about AI’s potential to disrupt traditional distribution economics. The group also faced tangible demand disruption from a major winter storm in the Northeast, a factor called out alongside broader industry anxieties.
Concluding note
Morgan Stanley’s upgrade frames Booking as a beneficiary of an AI-driven routing effect that still relies on established merchants to process transactions and assume customer-facing obligations. The firm’s view emphasizes Booking’s structural advantages - merchant-of-record status, data capture and a high gross margin - while the market continues to price in both AI-related uncertainties and recent episodic demand shocks.