Baron Funds has published its investor letter for the Baron Fifth Avenue Growth Fund for the third quarter of 2025, revealing a mixed performance against major market indices. In this quarter, the fund experienced a gain of 5.7% for its Institutional Shares. This performance lagged behind the Russell 1000 Growth Index, which recorded a robust 10.5% gain, and the S&P 500 Index, which posted an 8.1% return. Year-to-date, the fund is up 14.4%, although it still trails behind the 17.2% increase seen in the R1KG and the 14.8% rise of the SPX.
The investor letter also provided insights into the fund’s top holdings, notably highlighting Microsoft Corporation (NASDAQ:MSFT). Microsoft has emerged as a significant player in the tech sector, developing and supporting a wide range of software, services, devices, and solutions. However, the stock notably faced a decline of 3.38% over the past month, although it has recouped by 12.02% over the last 52 weeks. As of December 2, 2025, Microsoft shares stood at $490.00, with a substantial market capitalization of $3.642 trillion.
In its commentary, the fund emphasized Microsoft’s potential amid the ongoing evolution of artificial intelligence, particularly noting that recent quarterly earnings reports supported the significant opportunities presented by AI for productivity enhancements and incremental revenue growth. The letter referenced analysts, specifically citing Truist, which has raised its price target for Microsoft to $675 while reiterating a buy rating.
Additionally, Microsoft ranked as the second most popular stock among hedge funds, with 312 portfolios holding the stock at the end of the third quarter, an increase from 294 in the previous quarter. For the first quarter of fiscal year 2026, Microsoft reported impressive revenue figures of $77.7 billion, marking an 18% increase, or 17% when adjusted for constant currency.
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While Baron Funds recognized the merits of Microsoft as a potential investment, they suggested that there are other AI stocks in their portfolio that may offer greater upside potential with less risk of downside. They also hinted at particularly undervalued AI stocks positioned to benefit from Trump-era tariffs and the trend toward onshoring, encouraging investors to explore their insights through a free report on promising short-term AI stocks.
