ASX (ASX:ASX) revenue growth is expected to fade to about 3.5% in the second half of the fiscal year and into the next year, following a 6% year-on-year increase in the first half, according to a Thursday note by Morgan Stanley.

The slowdown is attributed to a decline in momentum from rate futures volumes, which surged 20% in the first half, but saw growth slow to just 10% in the second half of the fiscal year, Morgan Stanley said.

Morgan Stanley also noted that an elevated cost growth profile will likely continue to pressure ASX's profitability for several years.

Trading at a price-to-earnings ratio of 25.5 times for fiscal year 2026, ASX's valuation reflects a premium compared to its peers, Morgan Stanley added.

Morgan Stanley believes the slow capital market recovery in Australia, will limit the growth of listings and equity-related revenues for ASX.

The investment firm upped ASX's price target to AU$56.15 from AU$55.05 while maintaining an underweight rating.