Why AI Could Strengthen Jack Henry’s (JKHY) Competitive Edge?

Fiduciary Management Inc. (FMI), an independent money management firm, released its second-quarter 2026 investor letter. The letter can be downloaded here . The letter argues that markets posted modest Q3 gains, but rising rates, oil prices, and leverage drove a sharp decline in small-cap stocks. It cautions that elevated valuations, extreme investor optimism, and heavy S&P 500 concentration in AI-related companies make current returns difficult to sustain. While AI is driving investment and earnings growth, the firm sees opportunities in high-quality businesses unfairly punished by perceived AI risk—particularly Jack Henry, CDW, and RELX—which it believes can benefit from AI rather than be disrupted by it. Also, check the Fund's top five holdings to see its best picks for 2026.

In its Q3 2026 investor letter, Fiduciary Management Inc. highlighted Jack Henry & Associates, Inc. (NASDAQ: JKHY ), a financial technology company that provides core processing, digital banking, payment processing, and complementary technology solutions to financial institutions. On October 30, 2026, Jack Henry & Associates, Inc. (NASDAQ:JKHY) closed at $161.34 per share with a market capitalization of $11.31 billion. Jack Henry & Associates, Inc. (NASDAQ:JKHY) posted a 1-month return of 12.64% and a 52-week gain of 7.50%, trading within a 52-week range of $121.04 to $193.39.

Fiduciary Management Inc. stated the following regarding Jack Henry & Associates, Inc. (NASDAQ:JKHY) in its Q3 2026 investor letter:

"Jack Henry & Associates, Inc. (NASDAQ:JKHY) is an enterprise software business serving local commercial banks and credit unions. The company provides core banking software, the back-office technology stack that allows a financial institution to open customer accounts, take deposits, and process transactions. The product's mission-critical nature is difficult to overstate – without this core, a bank cannot perform its most basic functions. Switching costs define Jack Henry's competitive advantage, as its risk-averse customers in the highly regulated financial services industry are loath to rip-and-replace essential business infrastructure. Jack Henry has differentiated itself through a highly integrated suite of products and customer service that simplifies operations for the smaller, less-resourced organizations it serves. While Jack Henry doesn't have the R&D budget available to its much larger competitors, management's singular focus on this market opportunity has allowed it to thrive. This is evident in the most recent Core Platform Survey conducted by the American Bankers Association – customers rank Jack Henry well ahead of the competition. This has helped support a decades long trend of market share gains. Shares have de-rated this year as investors have priced in the risk of disruption from AI. The market has largely been undiscerning in its treatment of software businesses, but we think there's value in forming a more nuanced view. Banking software is heavily regulated, cybersecurity is paramount, and local banks are in the business of serving their local community, not building technology. We think it's more likely that Jack Henry emerges as a beneficiary of AI-driven efficiencies, rather than a casualty of technological disruption. Employees are operating more efficiently, new capabilities are shipping faster, and the company is embedding AI-enabled functionality into its offering. Jack Henry is leaning into change, and we're expecting financial performance to accelerate, not decelerate, over the coming years. Given the mispriced AI risk attached to Jack Henry shares, we were able to buy at a valuation discount to the broader market – an unusual entry point for a business of this quality."