Technology stocks have consistently outperformed the broad US market since the aftermath of the 2008 financial crisis, with particularly strong periods being the 2014-2021 and the 2023-2024. Technology stocks tend to perform well during economic expansions and periods of low interest rates, which stimulates the widespread adoption of technological advancements. However, during such periods, tech companies tend to trade at hyper-expensive valuations, which reflect the strong growth opportunities ahead. Many investors thus believe they become too overvalued, avoid having exposure to them, and consequently miss out on returns. The key point when it comes to technology stocks is that their valuations plummet instantly upon the slightest macroeconomic uncertainty and turmoil, which means that the best moment to acquire technology stocks is when they become oversold, and when fear dominates the market. We believe that we are currently at an opportune time to increase exposure to technology, because it is the most beaten down sector year-to-date. A recent analysis by Yardeni Charts shows that the S&P Information Technology is currently trading at 24.4 forward P/E, much below the late 2024 peak around 30, marking an almost 20% decline in valuations. Technology stocks haven’t been as cheap since 2023, when the Artificial Intelligence megatrend was just proliferating. Furthermore, the same source showed that the sector has experienced 2 consecutive quarters of negative revisions in earnings expectations, which means that Wall Street analysts have already priced in any short-term headwinds, reducing the chances of further negative surprises in the near future. In other words, the best possible scenario for buying is when both Wall Street and the market are pessimistic, which translates into weak expectations plus cheap valuations, and that’s exactly what appears to be happening with the technology sector right now. With tariff exceptions granted to electronic products, and President Trump hinting towards the possibility that China tariffs will come down from the current unsustainable 145%, the outlook for the technology sector is getting brighter. To sum up, we concluded that prices for technology stocks are lower now. The only question that remains to be answered is whether the macroeconomic background will be favorable enough to facilitate a new bull run for the tech sector. We are pleased to find confirmation of our hypothesis from leading consultants such as Deloitte. “Despite recent uncertainty and economic turbulence, the technology industry appears poised for growth in 2025, aided by increased IT spending, AI investments, and a renewed focus on innovation. Some analysts project that global IT spending will grow by 9.3% in 2025, with data center and software segments expected to grow at double-digit rates. Worldwide spending on AI is anticipated to grow at a compound annual growth rate of 29% from 2024 to 2028. Although the tech layoff trend persisted in 2024, reductions appeared to slow compared to 2023.”
With that being said, the current market setup appears extremely favorable for investing in oversold tech stocks that could recover some or all of the value lost during the recent Trump Tariff Turmoil. Our methodology involves identifying technology sector stocks that have a Relative Strength Index (RSI) below 40, and then comparing the list with Insider Monkey’s proprietary database of hedge funds’ ownership. The top 11 stocks with the largest number of hedge funds owning the stock, ranked in ascending order, are included in our list. We are interested in the stocks that hedge funds pile into because our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points.
Why We Like Tyler Technologies, Inc. (TYL) as an Oversold Tech Stock to Buy According to Hedge Funds
Tyler Technologies, Inc. (NYSE:TYL) provides integrated software and technology services for the public sector. Its product portfolio includes solutions for courts and justice, public safety, property appraisal and tax, financial management, permitting and licensing, records management, and K-12 education. The company offers both on-premises and cloud-based deployments, with a strategic collaboration with Amazon Web Services for cloud hosting services. Tyler Technologies, Inc. (NYSE:TYL) reported strong Q1 2025 results, exceeding expectations across key revenue and profitability metrics with double-digit total revenue growth driven by robust subscription revenues. SaaS revenues grew 21%, marking their 17th consecutive quarter of SaaS growth of 20% or more, while transaction-based revenues increased 18.5% due to higher transaction volumes and increased adoption of new services. Despite unpredictable macro conditions, Tyler Technologies, Inc. (NYSE:TYL) maintains a positive outlook, emphasizing the stability of its business model and the resilience of the public sector market. At least 44 hedge funds showed conviction and owned TYL stock at the end of Q4 2024, making it one of the best oversold stocks to buy according to hedge funds. The public sector market remains active with stable RFP and sales demonstration activity at elevated levels, though some procurement processes have slowed due to consultant-driven processes and additional macro environment scrutiny. The company’s leadership expressed confidence in its position, noting that local government revenues are primarily funded by reliable property taxes and utility revenues, while state-level transaction revenues are largely self-funded through user fees that are generally not impacted by economic conditions. Overall, TYL ranks 5th on our list of oversold tech stocks to buy according to hedge funds. While we acknowledge the potential of TYL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than TYL but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
Conclusion
In conclusion, we believe that Tyler Technologies, Inc. (TYL) is an oversold tech stock to buy according to hedge funds. The current market setup appears extremely favorable for investing in oversold tech stocks that could recover some or all of the value lost during the recent Trump Tariff Turmoil. With tariff exceptions granted to electronic products, and President Trump hinting towards the possibility that China tariffs will come down from the current unsustainable 145%, the outlook for the technology sector is getting brighter. We recommend considering TYL as a potential investment opportunity, but we also believe that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame.
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