Will I3 Verticals (IIIV) Benefit From AI?

Heartland Advisors , an investment management company, released its second-quarter 2026 investor letter for "Heartland Value Fund". A copy of the letter can be downloaded here . The AI trend continues to drive the market in the quarter. Small-cap stocks continue to outperform, with the Russell 2000® Index rising 21.49% in the quarter. The Heartland Value Fund gained 17.05% in the quarter, compared with the 17.19% return for the Russell 2000® Value Index. In addition, you can check the Fund's top 5 holdings to determine its best picks for 2026.

In its Q2 2026 investor letter, Heartland Value Fund highlighted I3 Verticals, Inc. (NASDAQ: IIIV ). I3 Verticals, Inc. (NASDAQ:IIIV) is an enterprise software and services solutions provider to public sector entities. On July 14, 2026, I3 Verticals, Inc. (NASDAQ:IIIV) closed at $20.87 per share. One-month return of I3 Verticals, Inc. (NASDAQ:IIIV) was 4.56%, and its shares lost 27.51% over the past 52 weeks. I3 Verticals, Inc. (NASDAQ:IIIV) has a market capitalization of $582.93 million.

Heartland Value Fund stated the following regarding I3 Verticals, Inc. (NASDAQ:IIIV) in its Q2 2026 investor update:

"While the herd mentality initially drove up PLAB shares on AI hopes, other companies have been overly punished by disruption fears. Case in point: I3 Verticals, Inc. (NASDAQ:IIIV), which makes enterprise software for the public sector, including school payment systems.

The shares slumped from around $34 last fall to below $20 in May over concerns that emerging automation and machine learning technologies are disrupting software stocks. In our view, these AI technologies are more likely to be a benefit than a disadvantage. The company has distinct advantages in data, domain expertise, and technical knowledge in a public sector environment that's slow to adopt new technology. This dynamic creates a deeply embedded platform and secure relationships that i3 manages for customer workflows. In fact, management recently stated that customers will likely move at a slower pace for artificial intelligence adoption than IIIV is capable of delivering. Meanwhile, IIIV can deliver cost savings capabilities through its software that budget strained public institutions need to do more with less.

We believe earnings per share should accelerate as recent investments in new applications roll out to customers and management executes on internal cost savings initiatives through automation. Moreover, IIIV's consistent outlook for recurring revenue growth, margin expansion, and free-cash-flow generation makes it attractive to a potential strategic acquirer, which could be a strong possibility in coming years if the market fails to fully value shares. Yet the stock price is just 10.3X fiscal year 2026 EBITDA, which represents a steep discount to its largest peer, which trades at 17.1X despite similar growth and margins. Another example of us splitting from the herd is in Utilities. The sector was one of our detractors when it came to security selection during the quarter. But many of these companies have been indirect beneficiaries of the AI infrastructure buildout and have seen their valuations climb. In our opinion, it does not make sense to take on AI related risks in this part of the market especially given current Utility valuations."

I3 Verticals, Inc. (NASDAQ:IIIV) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026 . According to our database, 11 hedge fund portfolios held I3 Verticals, Inc. (NASDAQ:IIIV) at the end of the first quarter, compared to 14 in the previous quarter. While we acknowledge the potential of I3 Verticals, Inc. (NASDAQ:IIIV) 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 covered I3 Verticals, Inc. (NASDAQ:IIIV) and shared Conestoga Capital Advisors' views on the company. In Q1 2026 investor letter, Heartland Value Fund noted that I3 Verticals, Inc. (NASDAQ:IIIV) fell during the quarter due to concerns about AI disruption. 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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Disclosure: None. This article is originally published at Insider Monkey .

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