Palm Valley Capital Funds Amdocs Resilience Amid AI Revenue Pressures

Palm Valley Capital Management, an investment management firm, identified Amdocs Limited (NASDAQ: DOX) as a key contributor to its fund's performance in the third quarter of 2026. The firm's investor letter for the "Palm Valley Capital Fund" noted that Amdocs shares partially rebounded after what the letter described as a "SaaSpocalypse" earlier in the year. Alongside Kelly Services (ticker: KELYA) and ManpowerGroup (ticker: MAN), Amdocs was among the three positions that contributed most to the fund's return during the period.

The fund's overall performance in the quarter was positive, with the Palm Valley Capital Fund gaining 1.61%. This return occurred while the S&P SmallCap 600 Index fell 7.93% and the Morningstar Small Cap Total Return Index decreased by 5.60%. As of the end of the period, 75.5% of the fund's assets were allocated to Treasury bills, and its equity-only performance stood at 4.8%. The letter observed that small caps underperformed large caps during the quarter, with the S&P 500 nearing its highs.

Palm Valley Capital described Amdocs as a mature and highly cash-generative business. The firm stated that Amdocs management is responding to the possibility that artificial intelligence will pressure billed revenue by expanding its scope of responsibility for customers. The company is also using automation to streamline delivery costs and is potentially expanding into new industry verticals outside of telecommunications.

A significant development cited in the letter was Amdocs' announcement of a 10-year strategic engagement with Liberty Latin America. Under this agreement, Amdocs will manage and transform Liberty Latin America's entire IT ecosystem using its agentic operating system. Palm Valley Capital believes this partnership could serve as a springboard for future deals utilizing AI capabilities.

Amdocs Limited, headquartered in Saint Louis, Missouri, provides software and services to communications, entertainment, media, and other service providers. On October 2, 2026, Amdocs closed at $58.12, giving it a market capitalization of $6.07 billion. The stock had experienced a year-to-date pullback of approximately 27.81%, trading within a 52-week range of $49.74 to $85.63. The company reported $263 million in trailing twelve-month revenue.

The fund's base case for Amdocs over the medium term projects minimal top-line growth at good margins. While Palm Valley Capital maintained an optimistic view on Amdocs in its Q2 2026 letter despite market fears over AI disruption, it noted in Q3 that certain other AI stocks might offer greater upside potential and carry less downside risk.

Data from Insider Monkey indicates that 31 hedge fund portfolios held Amdocs at the end of the second quarter, down from 32 in the previous quarter. The firm is not listed on Insider Monkey's list of the 40 most popular stocks among hedge funds.