Tyler Technologies Investment Report
Artificial Intelligence: Threat or Opportunity?
As of 8 months ago, Tyler’s share price was above $600 and it’s now down to $304 (as of 2/14/26) due to fears of AI affecting its business. That said, my employer Andvari Associates has allowed me to share its updated investment report on Tyler Technologies (TYL).
The new report updates how Tyler has changed and grown since 2020. Most pertinent is the discussion on whether artificial intelligence is a threat or opportunity. Here is a snippet of the executive summary. If you download the full 21-page PDF of the investment report, please subscribe to this Substack to show your support.
Executive Summary
Tyler Technologies is the only public company focused solely on software for state and local governments in North America. Since 1998, Tyler has acquired over 45 software companies. Revenues grew from $50 million in 1998 to over $2.3 billion in 2025. Cash flows and operating profits have grown at a faster rate.
The company has many attributes that drove past success and continue to make it an advantaged business. As a software business serving an incredibly stable market of government customers, Tyler has significant recurring revenues. The market of software for state and local governments has grown at 4%–6% in the past while Tyler has grown 1.5x to 2.0x the market. Also, Tyler management has allocated capital effectively and have always invested against long-term goals and not to meet short-term targets. It has effectively executed an M&A program against a highly fragmented market and has been an opportunistic repurchaser of shares.
As Tyler has grown and added capabilities, there are fewer and fewer competitors that can match the breadth of its offerings and service levels. When Tyler wins a new client, the client usually sticks around for decades—gross client retention for Tyler is nearly 100%. Furthermore, larger potential competitors have stayed away from this market because the sales cycle is measured in years, it requires deep knowledge to serve this niche and its various sub-verticals, and the opportunity is too small to move the needle for them.
Because of these qualities, Tyler has usually traded at a premium valuation relative to the market. However, with the advent of incredible new tools based on artificial intelligence, the market seems convinced Tyler and other software businesses will be displaced or relegated to the dustbin. Tyler’s share price has fallen over 50% from its peak share price in the summer of 2025.
Andvari believes AI’s impact on Tyler is overblown. It’s much more likely AI and related AI tools will be another opportunity for Tyler to provide value to its customers and for Tyler itself to become more productive. Because of the company’s deep domain expertise, decades-long customer relationships, and its stewardship of customer data, customers will come to Tyler first to talk about implementing new AI tools or features. Finally, as Tyler continues on its journey as a “cloud first” company and as it shifts more of its on-prem customers to the cloud, margins will increase and free cash flows will progress towards Tyler’s target of $1 billion by the end of 2030 from the $621 million it earned in 2025.
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The content of this publication is for entertainment and educational purposes only and should not be considered a recommendation to buy or sell any particular security. The opinions expressed herein are those of Douglas Ott in his personal capacity and are subject to change without notice. Consider the investment objectives, risks, and expenses before investing.
Investment strategies managed by Andvari Associates LLC, Doug’s employer, may have a position in the securities or assets discussed in any of its writings. Doug himself may have a position in the securities or assets discussed in any of his writings. Securities mentioned may not be representative of Andvari’s or Doug’s current or future investments. Andvari or Doug may re-evaluate their holdings in any mentioned securities and may buy, sell or cover certain positions without notice.
Data sources for all charts come from SEC filings, Koyfin, and other publicly available information.