Why Tyler Technologies Stock Tanked This Week
Key Points
To a degree, some were also anxious about the company's looming quarterly earnings report.
Not every market observer was bearish on the stock, however.
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This week was one to forget for Tyler Technologies (NYSE: TYL) and its investors. The dynamic in tech stocks was a shift out of software titles and into companies active in the artificial intelligence (AI) hardware space.
Although Tyler is somewhat insulated from such potential disruption, its shares took quite a hit anyway. They fell by nearly 10% across the week, according to data compiled by S&P Global Market Intelligence.
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Spending shifts
In recent weeks, major tech companies have indicated that they aim to spend significant amounts of capital on AI hardware. This implies that the proportion of IT budgets will shift, perhaps meaningfully, from software to hardware -- hence that mirroring trend with tech investors.
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Concerns about this grew significantly on Wednesday, when tech sector giant Alphabet reported its second-quarter earnings. The company did well during the quarter, as it frequently does, yet many investors were worried about management's pronouncements regarding capital expenditures.
The company increased its estimate for full-year 2026 capex to $195 billion to $205 billion, from $180 billion to $190 billion. And that's just the beginning -- it added that next year's spending will be much higher, although it didn't provide an estimate. Like other companies reporting recently, Alphabet cited the need to devote considerable capital to AI hardware.
Public sector to the rescue?
Tyler wasn't as badly affected by this as other software companies, as its client list consists entirely of public-sector entities. Since these tend to be less flexible about their budgets, if they're going to shift from spending on software to hardware, that change is likely to be gradual instead of sudden.
Personally, I wouldn't worry about Tyler getting hammered by this trend. It's done well servicing its niche, and its solutions are trusted and widely used throughout the public sector. I think the stock is now a juicy buy-on-weakness opportunity.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Tyler Technologies. The Motley Fool has a disclosure policy.
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