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Fenimore Asset Management, an investment management company, released its Q2 2026 investor letter. You can download the letter here. U.S. equity markets saw broad gains in Q2, driven by strong corporate earnings, economic resilience, and enthusiasm for artificial intelligence (AI). Major indices reached all-time highs, though the energy sector declined. Continued earnings growth, especially among AI-related investments, supported the rally. Technology, particularly semiconductors, led performance as demand for AI infrastructure surged. Despite macroeconomic uncertainties and interest rate influences, Fenimore remains committed to investing in high-quality businesses. The Fenimore Value Strategy achieved a 9.35% return in the quarter, underperforming the Russell Midcap Index, which returned 13.83% due to its significant exposure to AI. The fund's relative underperformance was influenced by the absence of certain positions, especially in the information technology and industrial sectors. Additionally, reviewing the Fund's top five holdings could help identify its best picks for 2026.

In its second-quarter 2026 investor letter, Fenimore Asset Management highlighted Tyler Technologies, Inc. (NYSE:TYL). Tyler Technologies, Inc. (NYSE:TYL) is a leading US-based integrated software and technology solutions provider for the public sector. On September 17, 2026, Tyler Technologies, Inc. closed at $341.57 per share. The one-month return of Tyler Technologies, Inc. was 4.10%, and its shares lost 37.05% over the past 52 weeks. Tyler Technologies, Inc. has a market capitalization of $13.99 billion.

Fenimore Asset Management stated the following regarding Tyler Technologies, Inc. (NYSE:TYL) in its Q2 2026 investor letter:

"We continued to build our position in Ryan Specialty Holdings (RYAN) and initiated new positions in Thermo Fisher Scientific (TMO) and Tyler Technologies, Inc. (NYSE:TYL). TYL is the leading software provider to state and local governments, supported by a large installed base, strong customer retention, and high switching costs. Fears around the potential impact of AI on software providers weighed on sentiment, creating an opportunity in the share price despite the mission-critical nature of TYL's solutions and the complexity of its integrations. Our recent attendance at the company's customer conference reinforced our view of strong customer engagement and satisfaction, further supporting the durability of its competitive position and long-term opportunity."

Tyler Technologies, Inc. (NYSE:TYL) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 48 hedge fund portfolios held Tyler Technologies, Inc. (NYSE:TYL) at the end of the second quarter, which was 42 in the previous quarter. While we acknowledge the potential of Tyler Technologies, Inc. (NYSE:TYL) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we discussed Tyler Technologies, Inc. (NYSE:TYL) and shared Andvari Associates' insights on the company. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.

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This article is originally published at Insider Monkey.