The artificial intelligence (AI) stock surge that started in 2023 has created some fortunes.
Over in the United States, companies like Nvidia Corp (NASDAQ: NVDA) and Microsoft Corporation (NASDAQ: MSFT) have been major beneficiaries since entering the AI foray. Both stocks are up 144% and 19% this year to date, respectively.
Life360 Inc (ASX: 360) is another AI stock riding the wave, but right here on the ASX in Australia.
Life60 shares are trading more than 120% higher this year to date, offering investors comparable gains to Nvidia. They are currently swapping hands at $16.70 apiece at the time of writing.
As AI continues to revolutionise various industries and with many shares still rallying, it begs the question of whether it is still worth buying Life360 to capitalise on the AI stock surge. Here's what the experts think.
Why consider this ASX AI stock?
Life360 shares were a major ASX performer in FY24, rallying more than 115% in that period. With the backdrop of AI driving positive sentiment, many brokers are still bullish on the AI stock.
According to CommSec, the consensus of analyst estimates is that it is a strong buy. Here are the main reasons brokers say to buy Life360 shares.
1. Adoption of its technology
The company is leveraging AI to enhance safety and connectivity for families worldwide through its mobile app of the same name.
The app provides real-time location updates, safety alerts while driving, and rapid emergency responses. It doesn't take great imagination to see the benefits of this feature.
And this hard-to-replicate business advantage is pulling through to Life360's financials. Revenues increased by 15% year over year in Q1, reaching US$78.2 million. This growth was driven by a jump in premium subscriptions and reduced churn rates The company put this down to the expansion of its safety features.
Bell Potter analysts are optimistic about Life360 due to the potential expansion of the technology. It recently retained its buy rating on the AI stock with a price target of $17.75. It believes the company has the potential to leverage its large and growing user base to enter and disrupt new markets.
2. Data collection possibilities
The app helps track children, elderly individuals, and those with special medical needs. This broad user base provides valuable data that can be used to fuel AI-driven innovations.
Morgan Stanley analysts see vast data collection capabilities as a competitive advantage for Life360. The company's subscriber base is around 66 million users, which is a tonne of a lot of insights.
The thinking is that Life360 can glean unique and actionable insights from these data points. Data is like digital gold in the modern age, so it's not surprising to see Morgan Stanley's posture so upright on this with the AI stock.
Solaris Investment Management's chief investment officer, Michael Bell, also praised Life360's growth, highlighting that the app has more than 2 million paying circles, ahead of expectations.
3. Future outlook
It's worth noting that Life360 is exploring monetisation opportunities through advertising.
Following its acquisition in 2021, the integration of Tile within the core Life360 subscription model could drive higher conversion rates and lower churn over time. This could also support subscription revenue growth.
Goldman Sachs analysts project the same outlook and estimate that Life360 is exposed to a total global addressable market (TAM) of US$12 billion. In a May note, it saw significant opportunities for the AI stock to expand its product suite and grow average revenue per paying circle (ARPPC).
The broker notes that Life360's subscription business trades at a discount to global peers despite its superior growth outlook.
It rates Life360 a buy:
The company is now scaling margins and earnings rapidly off a low base, with attractive unit economics and potential structural profitability tailwinds on the horizon from a reduction in effective app store fees.
Life360's Subscription business currently trades at a discount to global subscription app peers when adjusting for its superior growth outlook.
We see scope for re-rating as Life360 demonstrates operating leverage, ongoing subscription growth and user monetisation via ads. We are Buy rated on Life360.
Is this AI stock a buy?
Life360's innovative use of AI, robust financial performance, and significant growth potential could make it an attractive option for investors looking to profit from the AI stock surge. Brokers are bullish, and the stock continues its ascent in FY25.
However, as with any investment, it's essential to consider your risk tolerance and investment goals. While Life360 appears poised for continued growth, there's no certainty it will get there. Investors should always weigh the potential rewards against the risks and seek professional advice when necessary.
