We came across a bullish thesis on Tyler Technologies, Inc. on The Fat Pitch’s Substack. In this article, we will summarize the bulls’ thesis on TYL. Tyler Technologies, Inc.’s share was trading at $317.43 as of February 23rd. TYL’s trailing and forward P/E were 71.27 and 38.61, respectively according to Yahoo Finance.
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Tyler Technologies (TYL) has evolved from a diversified industrial conglomerate into the leading provider of vertical market software (VMS) for U.S. local governments, demonstrating a unique combination of scale, specialization, and recurring revenue resilience. Founded in 1966 as Saturn Industries by Joseph F. McKinney, the company initially navigated early bankruptcy and complex divestitures, strategically selling off non-core industrial businesses while returning significant value to shareholders.
This disciplined approach set the stage for a transformative pivot in the late 1990s under new leadership, focusing on government IT solutions, including justice, tax, and appraisal software. Tyler’s success stems from deep vertical expertise, long-standing client relationships, and a highly sticky customer base, with gross retention rates of 98% and contracts that often span decades, making it difficult for competitors, including PE-backed firms or large software incumbents, to displace them.
Tyler has leveraged acquisitions to consolidate a highly fragmented market, completing over 45 acquisitions since 1998, including major purchases like New World Systems, NIC, and the upcoming For The Record, expanding both its state-level and transactional payment capabilities. Its strategic shift to a SaaS model since 2019, powered by AWS, has converted over 2,000 on-premise products to subscription-based offerings, creating long-term recurring revenue while temporarily affecting headline growth due to accounting transitions.
The company now generates $2.1 billion in revenues with $5.2 billion in operating cash flow, operates debt-free, and holds $745 million in cash. Tyler’s dominant market position, high switching costs, and government-specific expertise insulate it from AI disruption, making current fears overblown. With a 21.4x P/FCF valuation, a zero-debt balance sheet, and a transition to high-margin SaaS, Tyler offers a resilient and compelling investment opportunity with limited downside and substantial long-term upside.
Previously, we covered a bullish thesis on Tyler Technologies, Inc. (TYL) by Douglas Ott in October 2024, which highlighted strong SaaS revenue growth, cloud-based subscription adoption, robust free cash flow, and strategic public sector acquisitions. TYL’s stock price has depreciated by approximately 47.6% since our coverage due to a Q4 2025 earnings miss, slashed 2026 growth guidance amid maintenance/hardware revenue weakness, and broader AI disruption fears, despite solid SaaS growth. The Fat Pitch shares a similar view but emphasizes Tyler’s historical transformation, sticky government client base, and long-term competitive moat.
Tyler Technologies, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 44 hedge fund portfolios held TYL at the end of the third quarter which was 46 in the previous quarter. While we acknowledge the risk and potential of TYL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TYL and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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Disclosure: None.
