| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 9.32% | -7.98% | -7.98% |
Baron Small Cap Fund declined 7.90% in Q1 2026, underperforming the Russell 2000 Growth Index by 5.09% as AI disruption fears and Iran war created market volatility. The fund's growth positioning and heavy technology exposure worked against it as small value outperformed and commodity sectors led. AI application releases rattled software and services stocks, with the fund's four application software companies declining meaningfully despite solid fundamentals. Data center infrastructure holdings Vertiv and Legence posted strong results as AI buildout continues. The fund added two new positions including Once Upon a Farm during its IPO, while trimming large positions in top performers. Manager remains optimistic about small-cap prospects if geopolitical tensions resolve, expecting economic growth acceleration and market broadening beyond Magnificent Seven. Key risks include high market valuations, elevated government debt, and potential war escalation. The fund maintains conviction in competitively advantaged businesses trading at attractive multiples relative to growth prospects.
Invest in competitively advantaged small-cap businesses run by superior management teams with long growth runways, focusing on five core sectors where the firm has deep expertise.
Manager expects return to bullish outlook if Iran war ends, with economic growth accelerating, Fed continuing rate cuts, and market broadening beyond Magnificent Seven. This would be good environment for small caps and their stocks specifically. However, acknowledges risks if war continues or escalates.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| May 1 2026 | 2026 Q1 | CGNX, GWRE, IT, PLNT, RBC, VRT | AI, Data centers, energy, Geopolitical, growth, small caps, software, technology |
VRT CGNX RBC PLNT IT GWRE |
Baron Small Cap Fund fell 7.90% in Q1 as AI disruption fears hammered software holdings while Iran war boosted commodities. Data center infrastructure names Vertiv and Legence surged on AI buildout demand. Manager sees opportunity in quality software companies trading cheaply on AI concerns, expecting small-cap outperformance if geopolitical tensions resolve and markets broaden beyond Magnificent Seven. |
| Feb 5 2026 | 2025 Q4 | CGNX, CWA, FROG, GWRE, HLI, ICLR, IT, JBT, KNSL, KTOS, MTD, NEPT, NOVT, ODD, PLNT, RBC, RRR, SITE, TDG, VRT | AI, Data centers, defense, growth, Quality, small caps, technology | - | Baron Small Cap Fund underperformed in 2025 as Quality Growth stocks fell out of favor while unprofitable concept stocks rallied. AI infrastructure and defense holdings drove positive contributions. The manager maintains conviction in high-quality portfolio companies and expects 2026 to provide a better environment for small-cap outperformance driven by earnings growth and multiple expansion. |
| Nov 5 2025 | 2025 Q3 | BWIN, CGNX, DAY, GTLS, GWRE, HLI, HLLY, IBP, ICLR, INTA, IT, ITGR, KNSL, KTOS, NVCN, PLNT, PTECH, RDNT, RRR, SITE, VRT | AI, Data centers, defense, growth, industrials, Quality, small cap, technology | - | Baron Small Cap Fund underperformed in Q3 as the small-cap rally favored speculative junk over quality companies. The Fund's focus on established, profitable businesses with strong cash flows was out of favor as meme stocks and concept plays dominated. Defense and data center holdings performed well. Management expects market preferences to shift back toward quality growth companies. |
| Aug 5 2025 | 2025 Q2 | ASGN, BWIN, CAKE, CWA, DKNG, DXCM, ENS, FROG, GDYN, GWRE, HH, HLLY, ICLR, IDXX, INSM, IT, KNSL, KTOS, LLYVA, NCNO, NEOG, ODD, PLNT, RRR, SEMI, SIZE, TDG, UTZ, VRT | AI, defense, growth, small caps, technology, value | - | Baron Small Cap Fund gained 10.38% in Q2 2025, driven by AI infrastructure leader Vertiv and defense technology stocks. Despite trailing the Russell 2000 Growth Index this quarter, the fund maintains its long-term outperformance track record. The manager sees compelling value in small caps after years of underperformance versus large caps and expects relative outperformance ahead. |
| Mar 31 2025 | 2025 Q1 | ASGN, BFAM, CAKE, FA, GDYN, GTLS, GWRE, IBTA, INDI, IT, KNSL, KTOS, NEOG, RDNT, RPAY, RRR, TDG, TTD, VRT, WCN | AI, growth, insurance, small caps, tariffs, technology, Trade Policy |
RADNQ PAR |
Baron Small Cap Fund outperformed its benchmark despite a 9.07% decline in Q1 2025, benefiting from strong insurance stock selection while suffering from AI infrastructure disruption and tariff uncertainty. The manager maintains conviction in high-quality small-cap growth companies trading at discount valuations, focusing on fundamental business strength rather than macro predictions during this volatile period. |
| Dec 31 2024 | 2024 Q4 | ALTR, ASGN, AZPN, BFAM, BLD, CAKE, DRVN, FOXF, FROG, GDYN, GTLS, GWRE, HLI, HQY, IBP, ICLR, INTA, IT, JBT, KNSL, NEOG, NPO, PLNT, RRR, TDG, VRT | AI, Data centers, growth, industrials, long-term, small caps, technology | - | Baron Small Cap Fund's concentrated approach delivered 13.61% returns in 2024, led by AI beneficiary Vertiv Holdings and other quality growth companies. The manager maintains conviction in special small-cap businesses with competitive advantages, holding positions for the long term. While higher rates pose near-term headwinds, small caps appear relatively cheap and positioned for outperformance as growth accelerates. |
| Sep 30 2024 | 2024 Q3 | ASGN, AZPN, BFAM, BWIN, CHRT, CWT, DXCM, FA, FND, GWRE, IBP, ICLR, INSP, INTA, IT, JANUS, KNSL, RRR, SIMO, SITE, TDG, VRT | AI, Data centers, financials, growth, industrials, Rate Cuts, small cap, technology | - | Baron Small Cap Fund outperformed in Q3 2024 on strong tech and financial stock selection, particularly benefiting from AI data center buildout and Fed rate cuts. Despite Health Care headwinds and economic uncertainty, the concentrated portfolio of leading companies with durable advantages remains well-positioned for long-term growth acceleration. |
| Jul 27 2024 | 2024 Q2 | ASGN, BWIN, CHRT, DAY, DKNG, ENDV, EWCZ, EXPO, FND, GDOT, GWRE, IBP, INSP, KNSL, LOAR, PLNT, SITE, SPT, TREX, VRT | Cloud, consumer discretionary, Data centers, healthcare, industrials, Rotation, small cap, technology | - | Baron Small Cap Fund lagged in Q2 due to broad sector weakness despite strong fundamentals from holdings like Vertiv (data center AI demand) and Guidewire (cloud transition progress). Recent small-cap rotation driven by inflation cooling and rate cut expectations creates opportunity, though economic trajectory remains uncertain. Fund maintains quality-focused approach with selective new positions and disciplined position sizing. |
| Apr 15 2024 | 2024 Q1 | ASGN, BFAM, BRP, CHI, DKNG, ENDV, GWRE, HQY, IBP, ICLR, IT, KNSL, RPAY, RRR, SITE, TDG, TREX, TTD, VRT, WEX | Concentration, growth, industrials, Long Term, Outperformance, small cap, technology |
INTC EXPO |
Baron Small Cap Fund outperformed significantly in Q1 2024 with 11.81% returns driven by concentrated holdings in quality small-cap businesses. Strong performance from data center infrastructure and specialty insurance companies highlighted successful long-term stock selection. Despite interest rate volatility, the manager sees compelling opportunity in undervalued small-cap stocks positioned for economic improvement and rate cuts. |
| Jan 27 2024 | 2023 Q4 | ALTR, ASGN, CLVT, DPHC, DXCM, ENDV, ETWO, EWC, FND, FOXF, GTLS, GWRE, IBP, ICLR, IDXX, IT, KNSL, KTOS, NCNO, NEOG, ODD, PLNT, RRR, SBA, SHLS, SITE, SKIN, TDG, TREX, TTD, VRT | AI, consumer discretionary, Data centers, growth, industrials, rates, small caps, technology | - | Baron Small Cap Fund delivered strong Q4 performance driven by concentrated holdings in high-quality growth companies. Key winners included Vertiv Holdings benefiting from AI-driven data center demand and Gartner positioned for AI decision support. The fund's long-term approach of holding special companies has created substantial value with multiple five-fold winners. Fed pivot expectations and falling yields provided tailwinds for the concentrated portfolio. |
| Sep 30 2023 | 2023 Q3 | ASGN, AZPN, CGNX, CLVT, DXCM, FND, FOXF, GTLS, GWRE, ICON, INDI, INSP, IT, KNSL, LBRDA, PLNT, RRR, SITE, VRT, WASH | Automation, consumer discretionary, Data centers, healthcare, industrials, small cap, Specialty Insurance, technology | - | Baron Small Cap Fund outperformed significantly in Q3 2023 despite market weakness, led by data center infrastructure play Vertiv Holdings and strong stock selection across Industrials and Technology. While facing headwinds from rising rates and geopolitical tensions, the manager sees small-cap stocks as attractively valued for patient long-term investors willing to weather continued volatility. |
| Dec 31 2022 | 2022 Q4 | ASGN, DXCM, EWCZ, GDYN, GTLS, INSP, IT, NEOG, PLNT, TTD, VRT | - | - | |
| Sep 30 2022 | 2022 Q3 | AVNT, AXNX, AZPN, CAKE, CLVT, GDYN, HLLY, ICLR, IT, KNSL, MRCY, RPAY, TTD | - | - | |
| Jun 30 2022 | 2022 Q2 | ASGN, CGNX, COLD, DRVN, GDYN, GTLS, IT, SHLS, SPT | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
AIAI applications disrupted software and services sectors, causing significant declines in the fund's software holdings. The fund maintains exposure to AI infrastructure buildout through data center companies like Vertiv. Manager views AI disruption concerns as creating opportunities in quality software companies trading at attractive valuations. |
Software Infrastructure Disruption Data Centers Applications |
Data CentersFund maintains sizeable investment in AI infrastructure buildout with capital spending continuing at breakneck pace. Large holdings Vertiv Holdings and Legence Corp posted tremendous results as data center infrastructure demand remains strong with no end in sight. |
Infrastructure Capital Spending AI Cloud Equipment | |
Small CapsSmall-cap stocks started strong but ended lower in Q1. Small value outperformed growth during the quarter. Manager believes small caps are poised for outperformance if geopolitical tensions resolve, with their stocks trading at low absolute multiples and cheap relative to other stocks. |
Value Growth Outperformance Valuations Relative | |
OilWar in Iran caused oil prices to spike dramatically, creating an 'oil shock' that drove commodity-oriented sectors higher while weighing on broader markets. Fund's lack of exposure to energy-linked industries hampered performance as oil-related stocks gained sharply. |
Geopolitical Energy Commodities Iran Shock | |
| 2025 Q4 |
AfricaFund delivered exceptional performance with 67.21% returns in 2025, significantly outperforming the 44.7% benchmark. Portfolio companies show strong fundamentals with forward PE of 6.1x, dividend yield of 8.0%, and expected EPS growth of 19.2%. Manager emphasizes this represents genuine earnings growth rather than multiple expansion. |
Frontier Markets Emerging Markets Equities Value Growth |
LiquidityManager addresses investor concerns about African frontier market liquidity, explaining structural factors affecting trading volumes. Notes that foreign investor participation, local retail involvement, and institutional demand all impact liquidity. Observes improving trading volumes in Nigeria and Kenya from recent lows. |
Market Structure Trading Institutional Foreign Investment | |
Capital MarketsDiscussion of African capital market development including recent IPO activity in Nigeria and privatization efforts in Kenya. Manager notes proliferation of new investment fund products in Tanzania creating equity demand. Highlights structural tailwinds from growing pension savings pools given Africa's young demographics. |
IPOs Privatization Pension Funds Demographics | |
| 2025 Q3 |
AIThe market was powered by continued excitement around AI, with significant investment in AI infrastructure driving GDP growth. However, market concerns about AI competition negatively impacted some software holdings, though the manager sees no evidence that AI is negatively impacting Gartner's value proposition. |
Artificial Intelligence Infrastructure Software Competition Investment |
Data CentersVertiv Holdings performed well as the outlook for massive expansion of data center capacity became evident, particularly benefiting from AI-related activity driving elevated demand. The company is well positioned for the ongoing buildout of AI data centers, especially through liquid cooling technologies. |
Infrastructure Capacity Cooling Technology Expansion | |
Defense SpendingKratos Defense & Security Solutions contributed to performance following strong earnings and continued momentum. The current defense spending cycle appears to be in a generational upswing amid heightened global conflicts, with the administration's openness to smaller, agile defense contractors strengthening opportunities. |
Contracts Global Conflicts Technology Spending Innovation | |
QualityThe Fund aims to avoid junk and invest in leading established businesses with strong earnings prospects and recurring cash flows, favoring presently profitable companies with years of compounding growth ahead. Higher-quality small-cap companies had their worst three months of relative performance on record during the quarter. |
Earnings Cash Flow Profitable Established Compounding | |
| 2025 Q2 |
AIAI remains the dominant and most compelling market theme. Vertiv Holdings, the fund's largest position, is a direct play on AI infrastructure buildout for data centers. The market became increasingly confident in the durability and longevity of AI growth during the quarter. |
Data Centers Infrastructure Growth Technology |
DefenseDefense stocks performed strongly due to innovative new products and geopolitical tensions. Holdings like Kratos Defense & Security Solutions benefited from accelerated multi-year growth driven by increased funding from the Department of Defense and global militaries for advanced solutions required for modern warfare. |
Geopolitical Government Technology Growth | |
Small CapsSmall-cap stocks rebounded nicely in the quarter and performed roughly in line with the broader market but are still meaningfully trailing larger caps this year. The Russell 2000 Growth Index is still 12% below the all-time high achieved four years ago, suggesting small caps offer great absolute value. |
Value Outperformance Russell 2000 Growth | |
| 2025 Q1 |
AIThe introduction of Chinese AI app DeepSeek disrupted expectations for AI infrastructure rollout, causing significant declines in AI-benefiting tech stocks. This raised investor concerns about reduced need for data center capital expenditures and slower growth for companies like Vertiv. Despite the disruption, the manager believes the complex roadmap for new chip introductions will still drive demand for advanced cooling solutions. |
Data Centers Infrastructure DeepSeek Chips |
Trade PolicyTrump's tariff implementation created maximum uncertainty in markets, with levels viewed as draconian and inflationary. The administration later paused tariff implementation to negotiate individually with trading partners, which was well received by markets. However, conflict with China escalated with far-ranging repercussions, making an amicable resolution unlikely anytime soon. |
Tariffs China Inflation Uncertainty | |
Small CapsSmall-cap stocks continued to meaningfully underperform larger market caps during the quarter. The fund maintained its approach of investing in small-cap stocks while trimming larger market cap holdings, buying stocks with $4.0 billion weighted average market cap and selling those with $19.3 billion weighted average market cap. |
Underperformance Market Cap Russell 2000 | |
InsuranceInsurance-related holdings provided relative stability in the risk-off market environment. Specialty insurer Kinsale Capital Group benefited from continued growth in end markets and elevated returns on equity. Insurance broker Baldwin Insurance Group showed strong revenue and EBITDA growth despite higher costs from California wildfires. |
Specialty Insurance Brokers Stability Growth | |
| 2024 Q4 |
AIAI-related data center buildout is driving extraordinary demand for Vertiv's power and cooling solutions. The company raised organic sales guidance to 12-14% CAGR for the next five years, benefiting from enormous capital investment in data centers to enable AI applications. JFrog is also positioned to benefit as generative AI adoption accelerates, driving the need to manage new binary types and increasing overall application complexity. |
Data Centers Infrastructure Software Growth Technology |
Data CentersData center infrastructure represents the fund's largest position through Vertiv Holdings, which provides critical digital infrastructure solutions. The company has leading market share in power and cooling applications and is seen as a prime beneficiary of AI-related data center buildout. Management raised guidance significantly based on multi-year growth expectations from this secular trend. |
Infrastructure AI Power Cooling Growth | |
SemiconductorsThe fund has exposure to semiconductor manufacturing through Enpro's Advanced Surface Technologies segment, which offers precision manufacturing, cleaning, and coating services to wafer fabrication equipment manufacturers and leading foundries. The company is positioned for strong above-market growth as leading-edge spend from Taiwan Semiconductor and others rises, especially in the U.S. |
Manufacturing Equipment Technology Growth Foundries | |
Small CapsSmall-cap stocks have underperformed larger caps and are relatively cheap and under-owned. The manager believes small caps will do better as their growth accelerates, though acknowledges higher interest rates are a hindrance. The fund's approach focuses on finding special small companies for long-term investment, with about three-quarters of assets in stocks held for 5+ years. |
Value Growth Underperformance Opportunity Long-term | |
| 2024 Q3 |
Data CentersVertiv Holdings leads data center equipment with significant share in power and cooling applications. The stock rebounded as investors gained confidence in massive AI data center buildout globally. Strong relationship with chip manufacturers and involvement in technology roadmap for increasing energy density solutions were catalysts. |
AI Infrastructure Power Cooling Energy Density Server Racks |
CloudGuidewire Software advanced after subscription gross margins improved by over 1,000 basis points as cloud migration is substantially complete. Cloud will be the sole path forward with annual recurring revenue benefiting from new customer wins and migration to InsuranceSuite Cloud. |
SaaS Migration Subscription Insurance Software Margins | |
RatesFederal Reserve began easing cycle with 50-basis point cut in late September, seen as aggressive and first of many cuts to come. Lower rates positive for future growth in housing, finance, and consumer spending. Small- and mid-cap stocks have historically benefited most when rate cuts begin. |
Fed Policy Rate Cuts Economic Growth Small Caps Valuations | |
| 2024 Q2 |
Data CentersVertiv Holdings Co, a leading provider of critical digital infrastructure for data centers, is positioned to benefit from AI-driven growth in data center spend. The company reported very strong results with orders up 60%, highlighting strong demand for its products in data center cooling and power management. |
AI Infrastructure Cooling Power Orders |
CloudGuidewire Software is transitioning insurance clients to the cloud, with the cloud transition substantially over. The company expects annual recurring revenue to benefit from new customer wins and migrations of existing customers to Insurance Suite Cloud, with subscription gross margin expansion improving by more than 1,000 basis points. |
SaaS Insurance Migration Recurring Revenue Margins | |
Small CapsThere has been a noticeable recent rotation into small-cap stocks, which the manager finds welcome and overdue. Small caps now trade at a valuation discount, which is unusual because they typically grow faster. The performance of small-cap stocks has significantly lagged larger caps for years. |
Rotation Valuation Discount Outperformance Lagging | |
| 2024 Q1 |
Data CentersVertiv Holdings Co, the leading provider of cooling solutions to data centers, continued strong performance with 70% of revenue from data center end market. The company benefits from rising demand for data center capacity and increasing adoption of generative AI, as GenAI-related servers have higher energy density requiring more sophisticated cooling solutions. |
Cooling Infrastructure GenAI Servers Thermal Management |
Small CapsSmall-cap growth stocks have significantly underperformed large caps for years and are priced well below their historical premium. Small-cap stocks usually perform better as the economy improves and interest rates are cut, both of which the manager believes are on the horizon. |
Underperformance Valuation Premium Economic Improvement Rate Cuts | |
IndustrialsHigh concentration in Industrials at 32.9% of fund assets consists of multiple investments in leading niche businesses with strong long-term growth prospects due to superior market positioning and secular tailwinds. This does not reflect near-term conviction in economic growth pace but rather structural advantages. |
Niche Positioning Secular Tailwinds Concentration | |
| 2023 Q4 |
Data CentersVertiv Holdings benefits from robust demand for data center cooling solutions, particularly as AI-related servers require more sophisticated cooling. The company held its first Analyst Day introducing long-term growth targets and margin expansion plans. |
AI Cooling Infrastructure Margins Growth |
AIArtificial intelligence is driving demand for data center infrastructure, particularly cooling solutions for AI-related servers which have higher energy density. Gartner is positioned as a critical decision support resource for companies evaluating AI opportunities and risks. |
Data Centers Servers Decision Support Technology | |
Small CapsSmall-cap stocks finished strong in Q4 after terrible relative performance for most of the year, with the rally tilted toward lower-quality issues and value-oriented names. Small caps remain well off their highs and relatively undervalued with room to run. |
Valuation Relative Performance Value Quality | |
RatesFed Chairman Powell indicated the Fed was likely done raising rates, igniting a decline in yields from 5% to under 4% on the 10-year government bond. Lower rates benefited interest rate sensitive stocks and those helped by lower borrowing costs. |
Fed Yields Borrowing Costs Monetary Policy | |
| 2023 Q3 |
Data CentersVertiv Holdings, the fund's largest position, benefits from AI-driven growth in data center infrastructure. The company provides critical thermal management solutions for increasingly energy-dense data centers required for artificial intelligence applications. |
AI Cooling Infrastructure Energy Thermal |
AutomationIndustrial automation represents a key investment theme through holdings like Aspen Technology and Cognex Corporation. These companies provide software and machine vision systems that drive productivity improvements and emissions control across manufacturing. |
Software Manufacturing Productivity Vision Robotics | |
GLP1Weight loss drugs like Ozempic and Wegovy are creating market disruption across multiple sectors. The fund holds companies potentially impacted by reduced obesity rates, including Inspire Medical Systems and DexCom, which management believes are oversold. |
Diabetes Obesity Medical Disruption Pharmaceuticals | |
SemiconductorsAutomotive semiconductor exposure through indie Semiconductor, which focuses on advanced driver assistance systems and connected car applications. The company has a $4.3 billion strategic backlog and expects significant revenue growth from automotive silicon content increases. |
Automotive ADAS Connected Silicon Electrification |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | VRT | Vertiv Holdings Co | Electrical Equipment & Parts | Electronic Equipment, Instruments & Components | Bull | New York Stock Exchange | AI infrastructure, data centers, digital infrastructure, electrical equipment, growth, liquid cooling, Modular Solutions, thermal management | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | CGNX | Cognex Corporation | Scientific & Technical Instruments | Electronic Equipment, Instruments & Components | Bull | NASDAQ | Best-in-class, growth, Industrial automation, Machine vision, manufacturing, operating leverage, turnaround | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | RBC | RBC Bearings Incorporated | Tools & Accessories | Machinery | Bull | NASDAQ | Aerospace, Bearings, Boeing, Cyclical Recovery, Defense, Industrial, Marine Programs, Top-tier Supplier | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | PLNT | Planet Fitness, Inc. | Leisure | Hotels, Restaurants & Leisure | Bull | New York Stock Exchange | Category Leader, Cheap Valuation, Fitness Centers, franchise, Low cost, new management, same-store sales, secular growth | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | IT | Gartner, Inc. | Information Technology Services | IT Services | Bull | New York Stock Exchange | AI disruption, Competitive advantages, Free Cash Flow, IT services, Large Addressable Market, Research Provider, share repurchases, Syndicated Research | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | GWRE | Guidewire Software, Inc. | Software - Application | Software | Bull | New York Stock Exchange | AI Tailwind, Annual Recurring Revenue, cloud migration, cross-selling, Insurance-software, Property & Casualty, SaaS, Sticky Customer Base | Login |
| May 1, 2026 | Fund Letters | Baron Small Cap Fund | - | Once Upon a Farm, PBC | Other | Food Products | Bull | NASDAQ | Baby Food, Cold Pressure Technology, Distribution Expansion, Emerging Brand, High Growth, Natural Products, Organic Food, Premium Nutrition | Login |
| Mar 31, 2025 | Fund Letters | Baron Small Cap Fund | RADNQ | RadNet, Inc. | Health Care | Health Care Services | Bull | NASDAQ | Acquisitions, Aging demographics, AI, CT, diagnostic imaging, digital health, Healthcare services, joint ventures, Mri, Outpatient, Pet, Radiology | Login |
| Mar 31, 2025 | Fund Letters | Baron Small Cap Fund | PAR | PAR Technology Corporation | Information Technology | Application Software | Bull | NYSE | ARR, Digital transformation, Enterprise software, Foodservice Technology, operating leverage, Point of Sale, QSR, Restaurant technology, SaaS | Login |
| Mar 31, 2024 | Fund Letters | Baron Small Cap Fund | INTC | Intapp, Inc. | Software & Services | Application Software | Bull | NASDAQ | AI-Enabled Software, Cloud software, CRM, Deal Management, Legal Technology, Professional Services Software, regulatory compliance, SaaS, workflow automation | Login |
| Mar 31, 2024 | Fund Letters | Baron Small Cap Fund | EXPO | Exponent, Inc. | Commercial & Professional Services | Research & Consulting Services | Bull | NASDAQ | defensive business model, Engineering Consulting, Failure Analysis, high margins, premium services, risk management, Scientific Consulting, secular growth drivers | Login |
| TICKER | COMMENTARY |
|---|---|
| VRT | Vertiv Holdings Co is a leading global provider of critical digital infrastructure solutions for data centers, communication networks, and commercial and industrial environments, with one of the broadest offerings in electrical and thermal management equipment and services within the data center infrastructure industry. Shares increased after Vertiv reported blowout orders and backlog, well above expectations, and guided to meaningfully higher earnings. The company is benefiting from the industry's shift toward integrated and modular solutions. Vertiv is a leading provider of these solutions, backed by industry-leading servicing capabilities, and is also well positioned to support key technology transitions, including liquid cooling and direct current architectures. We underwrite that Vertiv will grow its revenues by over 40% in 2026 and 30% in 2027, with increasing margins and free cash flow. Though the stock is up a ton, it trades at a reasonable multiple. We continue to see big upside and hold a large position. |
| CGNX | Cognex Corporation is a leading provider of machine vision solutions. Shares climbed during the quarter following a strong earnings report, with the company showing signs of a return to accelerated growth alongside material cost reductions initiated by the new management team, with whom we are very impressed. We believe Cognex is positioned to benefit from improving industrial conditions and has substantial latent operating leverage that could drive earnings to double over the next two to three years. We remain confident in Cognex's position as the best-in-class provider of advanced machine vision solutions. |
| RBC | RBC Bearings Incorporated is a proprietary aerospace and defense (A&D) and industrial solutions provider. Shares rose during the quarter as the company's end markets are undergoing significant, sustained growth—from A&D, led by marine-related programs, to commercial original equipment manufacturers, driven by Boeing's reaccelerated production ramp. As a top-tier supplier, RBC is well positioned to meet this elevated level of demand, which should persist for the foreseeable future. |
| PLNT | Planet Fitness, Inc., a leading franchiser and operator of low-cost fitness centers, detracted from performance after the company issued disappointing 2026 guidance that came in below investor expectations, especially relative to more aggressive three-year financial targets provided months earlier. During the quarter, the company's internal improvements under new leadership led to same-store sales growth of 5.7%, EBITDA increasing 12%, earnings per share rising 18.6%, and gym openings exceeding expectations. Longer term, we believe Planet Fitness will benefit from ongoing initiatives to improve member experience and franchisee returns, remaining well positioned as the category leader in the secularly attractive fitness industry. We believe the new management team is very strong and believe in their vision of enhancing the brand, evolving the offering, and revitalizing growth. The stock traded down to a very cheap multiple for this leading franchise business over this guidance faux pas, which will cure itself over time. |
| IT | Syndicated research provider Gartner, Inc. detracted from performance as valuation multiples compressed amid rising concerns around AI for IT services companies. Against this backdrop, shares of Gartner came under pressure after the company reported contract value growth that was slightly below expectations, underscoring the dramatic valuation compression at play. We continue to own Gartner given its large addressable market, significant competitive advantages, and robust free cash flow generation. Management has been extremely aggressive with share repurchases at these depressed valuation levels and remains steadfast in their belief that growth will rebound. |
| GWRE | Shares of property and casualty insurance software vendor Guidewire Software, Inc. declined during the quarter amid concerns about the disruptive impact of AI, which weighed broadly on software stocks. We retain conviction in Guidewire and believe its fundamentals remain robust. The company's cloud sales are accelerating, with annual recurring revenue benefiting from new customer wins, expansions, and migrations of its existing customer base. The ongoing shift away from on-premises deployments, along with strong customer references from insurers such as Liberty Mutual, The Hartford, and Sompo, should further accelerate customer migration to the cloud. Additionally, Guidewire is ramping investment in product development, which should facilitate cross-selling into its sticky installed base. AI should act as a tailwind, helping the company accelerate product releases, create products that were previously out of reach, and reduce the cost of customer implementations (a historical impediment to adoption). We believe these dynamics position Guidewire for sustained growth over the long term. |
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