Is LegalZoom's Recent Institutional Buying and Rating Upgrades a Catalyst for a Strong Buy?

In the ever-evolving legal tech sector, LegalZoom (LZ) has emerged as a compelling case study in institutional confidence and strategic investor timing. Recent developments-including a 48.6% stake increase by JPMorgan Chase & Co. and a "Buy" upgrade from Bank of America-have sparked renewed interest in the stock. With LegalZoom reporting robust Q2 2025 financials and maintaining resilient EBITDA margins, the question now is whether these catalysts signal a near-term entry point for investors seeking exposure to an undervalued legal tech play.

Institutional Buying: A Vote of Confidence Amid Mixed Signals

JPMorgan's decision to boost its stake in LegalZoom by 48.6% during Q2 2025, adding 442,345 shares to hold 1.35 million shares (0.75% of the company), underscores institutional confidence in the firm's long-term potential. This move, valued at approximately $12.05 million, aligns with LegalZoom's Q2 revenue of $192.5 million-a 9% year-over-year increase driven by subscription growth. JPMorgan also raised its price target to $12 from $11, reaffirming an "Overweight" rating.

However, the institutional landscape was not uniformly bullish. Kazazian Asset Management LLC reduced its stake by 51.3%, selling 125,507 shares, while company insiders offloaded 70,609 shares during the same period. These exits, while notable, appear to reflect tactical portfolio adjustments rather than a fundamental reevaluation of LegalZoom's business model. The contrast between JPMorgan's aggressive accumulation and other investors' retrenchment highlights a divergence in sentiment, with major institutions clearly favoring LegalZoom's growth trajectory.

BofA's "Buy" Upgrade: AI and Subscription Growth as Key Catalysts

Bank of America's August 2025 upgrade of LegalZoom from "Underperform" to "Buy" further solidifies the case for institutional optimism. Analyst Michael McGovern cited the company's strategic AI partnerships-particularly with Perplexity and OpenAI-as a transformative opportunity to bridge AI-generated advice with actionable legal services. This alignment with AI innovation positions LegalZoom to capture a broader user base, especially as demand for accessible legal tools grows.

The upgrade also emphasized LegalZoom's subscription-based model, which has driven double-digit revenue growth in compliance and virtual mail services. BofA raised its price target to $12 from $8, reflecting expectations of significant free cash flow expansion and a valuation discount to peers. These factors, combined with EBITDA margins exceeding 20% (a critical metric for assessing operational efficiency), suggest LegalZoom is not only surviving but thriving in a competitive market.

Strategic Investor Timing: Aligning with Institutional Momentum

The timing of these developments is crucial for investors. JPMorgan's Q2 stake increase and BofA's August upgrade occurred against a backdrop of LegalZoom's Q2 revenue growth and a raised 2025 revenue outlook of 8%. The company's Adjusted EBITDA of $39.0 million in Q2, coupled with maintained margin expectations, demonstrates resilience amid macroeconomic headwinds.

For strategic investors, the window between Q2 institutional buying and the August rating upgrade represents a low-risk entry point. LegalZoom's stock has historically underperformed relative to its fundamentals, creating a valuation gap that analysts like JPMorgan and BofA are now closing. With AI integration and subscription monetization as near-term catalysts, the stock appears poised to outperform in the coming quarters.

Conclusion: A Strong Buy for Legal Tech's Next Chapter

LegalZoom's recent institutional buying and analyst upgrades are not isolated events but part of a broader narrative of undervaluation and growth potential. JPMorgan's 48.6% stake increase and BofA's "Buy" rating-backed by AI-driven innovation and resilient EBITDA margins-signal a consensus that LegalZoom is entering a new phase of strategic relevance. For investors seeking exposure to a legal tech play with both institutional backing and a compelling valuation, the case for a "Strong Buy" is well-supported.