A Once-in-a-Decade Opportunity: 1 Magnificent S&P 500 Stock Down 41% to Buy Right Now

Over the course of 2026, the market has swung from a "SaaSpocalypse" panic that pushed software-focused exchange-traded funds (ETFs) down by roughly 30% to a recognition that artificial intelligence (AI) could be a boon for the same companies it was previously expected to demolish.

However, despite this sell-off and subsequent rebound, the iShares Expanded Tech-Software Sector ETF (NYSEMKT: IGV) remains down 4% over the last 12 months compared to the S&P 500's total returns of 21%.

While the fears of AI disruption may have begun to abate (at least for software-as-a-service stocks), there are still plenty of compelling opportunities in the space. Below, we will look at a top-tier option that remains 41% below its high and explain why the SaaS stock's once-in-a-decade valuation and wide moat make it an excellent long-term buy.

Tyler Technologies: Surviving (and thriving with) AI

Tyler Technologies (NYSE: TYL) combines niche-specific vertical software onto a single, mission-critical platform that acts as the operating backbone for government agencies. Working with state and local entities, courts and justice departments, and school and public administration customers, Tyler and its platform benefit from high switching costs, as well as the inherent inertia of government agencies, which tend to be reluctant to overhaul their systems.

In addition to this customer stickiness, AI companies can't really sneak into Tyler's territory (at least, not without the company using it to its advantage) due to the extensive regulations around government agencies' behaviors, and the legal risks inherent to allowing "vibecoded" solutions to manage citizen or governmental data. Furthermore, Tyler Technologies has been a roll-up acquisition machine, targeting companies with software solutions for niche verticals (think jury selection algorithms or student transportation and bus routing) that its potential peers have no interest in competing with because of their small size.

Image source: Getty Images.

Despite being somewhat "weird" niche processes, these types of solutions are mission-critical for local governments. This means they can't easily be cut from government budgets, giving Tyler strong pricing power. It's the market leader at handling these types of vertical software solutions across government agencies and boasts decades of state- and municipality-specific insights and customizations that would be hard for any peer to replace without spending millions, if not billions of dollars. For example, DMV processes differ in some aspects across every state, but Tyler has customized its solutions state by state to comply with all necessary regulations.

Now the company is actively transitioning its government customers to the cloud with its SaaS solutions, enticing them to switch with the allure of AI-powered offerings. Tyler Technologies explains that only its cloud services customers can access AI offerings like document processing, permit review, reconciliations, resident support, and report writing.

With sales and SaaS revenue up 8% and 22%, respectively, and free-cash-flow margins continuing to march toward management's low-30% goal by 2030, it seems as though the AI trend is adding momentum to Tyler's SaaS shift rather than disrupting its business.

Tyler's once-in-a-decade valuation

Though Tyler Technologies stock has jumped 22% in the last month, the company's valuation on a free-cash-flow basis still sits near a 10-year low.

TYL Price to Free Cash Flow data by YCharts.

Trading at just 23 times free cash flow (or 29 times even after accounting for stock-based compensation), Tyler remains more reasonably priced than it has been at any time over the past decade. This discount exists despite sales growth slowing only marginally from 15% annually over the last decade to an expected 9.5% this year, based on management's latest guidance.

Best yet, the company has been buying back its shares hand over fist. As the stock plummeted in 2026, management jumped in and lowered Tyler's outstanding share count by 6%, retiring a hefty chunk of stock at historically discounted valuations.

With management raising Tyler's 2030 free-cash-flow guidance to between $1.1 billion and $1.2 billion -- a range they say doesn't include the potential of acquisitions or new AI solutions -- the company's current market cap of just $15 billion could be outgrown quickly. Considering Tyler Technologies' track record of success at integrating acquisitions, paired with the fact that its newly purchased roll-ups have grown their sales twice as fast as the company's core businesses, there may be more upside in the S&P 500 stock than the market is giving it credit for today.

Josh Kohn-Lindquist has positions in Tyler Technologies. The Motley Fool has positions in and recommends Tyler Technologies. The Motley Fool has a disclosure policy.