Investing.com -- Morgan Stanley analysts highlighted strong domestic demand across US gaming and lodging sectors at their industry conference, with signs pointing to continued consolidation activity ahead.

The firm noted broad-based improvement in lodging demand on Monday, led by leisure and group bookings alongside accelerating corporate travel. Higher-end hotel chains maintained their lead, while lower-end properties showed positive momentum despite headwinds from rising gas prices, interest rates and healthcare costs.

Gaming operators reported stable to accelerating trends across domestic markets, excluding Macau, according to commentary at the conference. The analysts said they saw no impact from Middle East geopolitical tensions on gaming performance.

Morgan Stanley pointed to artificial intelligence as a developing factor, with companies exploring applications in revenue management, distribution optimization and labor cost reduction. The firm said outcomes remained unclear, particularly around changes to booking channels between direct sales, online travel agencies and large language models.

Recent merger activity in brick-and-mortar casinos drew significant attention, with the analysts noting that consolidation appeared likely to continue. The firm's capital markets and private equity panels cited an improving demand environment and a potentially limited approval window under the current administration for larger deals.

"Virtually all sub-segments were said to have potential, including hotel C-corps, REITs, regional casinos, and digital gaming," Morgan Stanley wrote.

The firm said valuations have risen but remain below historical levels for most companies in the space. Among hotel REITs, Morgan Stanley expressed particular confidence in RHP given its visibility in higher-end properties and entertainment segment exposure.