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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Baron Discovery underperformed in Q2 2026 as momentum-driven AI winners dominated small-cap performance in what managers view as a bubble comparable to the dot-com era. They explicitly avoided chasing momentum, instead using software sector weakness to initiate Samsara and Rubrik at attractive valuations while taking profits in AI-exposed names approaching targets."
Baron Discovery Fund returned 19.08% in Q2 2026, underperforming the Russell 2000 Growth Index's 25.71% return driven almost exclusively by momentum in AI winner stocks. The managers draw explicit parallels to the dot-com bubble, arguing that while AI is transformative technology, adoption faces real headwinds including token cost pushback, data sovereignty concerns, and infrastructure constraints. They attribute 6% of the 6.63% underperformance to being underweight Momentum and Beta factors, viewing this as a feature of their disciplined process rather than a flaw. The managers used software sector weakness to initiate positions in Samsara and Rubrik at attractive valuations, with Rubrik purchased in the mid-$50s during the SaaS-pocalypse and closing the quarter above $80. They took profits in AI-exposed names approaching price targets while adding to defense positions on weakness. The portfolio holds concentrated positions in differentiated businesses across infrastructure, software, defense, and specialty industrial companies trading at compelling valuations despite strong growth prospects. Top contributors included SiTime, Forgent Power Solutions, and CareDx.
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