NZS Capital, LLC, an investment management company, released its “NZS Growth Equity Strategy” first-quarter 2026 investor letter. A copy of the letter can be downloaded here. The NZS Growth Equity strategy experienced a return of -8.75% (gross) and -8.91% (net) in Q1 2026, underperforming the -3.30% of the Morningstar Global Target Market Exposure Index. This decline was primarily due to weakness in growth stocks and a significant exposure to software. While the materials sector positively impacted absolute returns, the semiconductor sub-sector also showed strong contributions. Major detractors from absolute returns included Information Technology, Financials, and Healthcare. The overall market decline presented the firm with new investment opportunities amid rising uncertainty and inflation expectations. In addition, please check the Strategy’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, NZS Capital highlighted stocks like Tyler Technologies, Inc. (NYSE:TYL). Tyler Technologies, Inc. (NYSE:TYL) is a leading integrated software and technology solutions provider for the public sector in the United States. On June 18, 2026, Tyler Technologies, Inc. (NYSE:TYL) closed at $276.88 per share. One-month return of Tyler Technologies, Inc. (NYSE:TYL) was -11.61%, and its shares lost 51.41% over the past 52 weeks. Tyler Technologies, Inc. (NYSE:TYL) has a market capitalization of $11.39 billion.
NZS Capital stated the following regarding Tyler Technologies, Inc. (NYSE:TYL) in its Q1 2026 investor letter:
“New additions to the portfolio outside of healthcare include optionality positions in Tyler Technologies, Inc. (NYSE:TYL) and Sabre Corp. Tyler Technologies, which we added in the quarter, provides software for government administrative purposes, including public administration, property appraisal, tax assessment, court management, and public safety. We’d argue that Tyler’s software acts as mission critical SoR whose value is much more than just the code; yet, their product usually represents only a fraction of a percent of a customer’s operating budget. Even setting aside the risk-averse nature of municipal government customers, such high levels of NZS seem quite unlikely to be internally vibe coded or ripped and replaced for an “AI-native” startup with no track record. Despite this positive outlook, Tyler’s stock has fallen >40% in the past year. Ultimately, we think the most likely outcome is that AI agents will interact with the existing high-NZS SoR rather than replace them. That brings us to the second, and in our opinion much bigger, risk to software from AI. We think AI is much more focused on generating ROI through the elimination of labor than displacing existing software platforms. Given that we believe the risk to labor from AI is a credible (if not likely) concern, we’ve positioned our software exposure accordingly. Roughly 70% of our software holdings are primarily vertical market software, i.e., companies servicing a specific vertical rather than broad enterprises; we believe the seat risk is significantly lower in vertical market software businesses.”
