Baron Fifth Avenue Growth Fund | Q1 2026

Dear Baron Fifth Avenue Growth Fund Shareholder,

Baron Fifth Avenue Growth Fund® (the Fund) declined 10.4% (Institutional Shares) during the first quarter, which compares to declines of 9.8% for the Russell 1000 Growth Index (R1KG) and 4.3% for the S&P 500 Index (SPX), the Fund’s benchmarks.

In some ways, this quarter reminds us of the first quarter last year. We were coming off of two consecutive years of strong market returns. The Fed was in the midst of an easing cycle. Advancements in AI were offering new tantalizing opportunities. Valuations were not cheap, but in our view, not at all unreasonable. We characterized the U.S. large-cap investment landscape as generally favorable and, in some pockets, as downright attractive. But then in early February the market got a wind of the new tariff policy and President Trump declared that “trade wars are good, and easy to win” and the market went into a tailspin. The SPX lost 4.3% for the first quarter of 2025, R1KG was down 10.0%, while the Fund declined 13.4% - rather similar outcomes, except we did 300bps better this time, resulting in essentially in line performance versus the R1KG. In that quarterly review we wrote: “While every correction, pullback, or bear market is different, at their core, they are always driven by fear, uncertainty, and doubt. It is easy and tempting to get lost in the details because they change every time, but fundamentally, markets depend on stability and predictability. Every time stability and predictability are threatened – markets pull back.”

Well… we started 2026 off of three consecutive years of strong market returns with the Fund gaining 156.5%, cumulatively, and were likely due for a breather anyway. The increased geopolitical tension and the subsequent war with Iran caused the price of oil to spike to as high as $150 per barrel (physical brent crude). Treasury yields went up, probability of further rate cuts went down, the range of possible negative outcomes expanded significantly – and the markets sold off.

From a performance attribution perspective, this was a relatively in-line quarter. Stock selection added 31bps, while the effect of sector allocation detracted 89bps. We added value in Information Technology (IT) and Industrials, while underperforming in Financials, Health Care, Consumer Discretionary, and Communication Services. We held no investments in Energy (+43.6%) or Consumer Staples (+10.9%), the two best performing sectors in the R1KG, which cost us 66bps of relative returns, or the entire delta.

From a stock specific perspective, there were 5 contributors against 25 detractors, which is not surprising in a down 10% quarter. Our biggest contributor was SpaceX, whose new funding round led our fair value committee to revalue the stock higher, which contributed 69bps to our absolute results. Now at 7.5% of the Fund, SpaceX continues to offer exciting, asymmetric, positive optionality, in our view. Taiwan Semiconductor (TSMC), ASML, Monolithic Power Systems, and Cloudflare were our other winners that contributed 148bps combined, to absolute returns. On the negative side, 10 of our holdings detracted more than 50bps each from absolute results due to broader AI and macro concerns causing a selloff. Apart from Atlassian, which we decided to exit as we consolidated our software ownership to our highest conviction ideas, we do not believe any of these 10 investments will cause a permanent loss of capital.

In News Reporting – Sensational Always Dominates Over Statistical

The current news cycle often has a disproportionate impact on stock prices. Entire investment strategies are built on analyzing daily news flow and executing trades with lightning speed (think micro-seconds). An army of technical analysts opine daily on the significance of “breaking moving averages” and formations of “head and shoulders” in various stock charts. The goal of these highly paid experts is to predict where stock prices will go over the next say 30 or 60 days. Most of our investors will agree with us that 30 or 60-day returns don’t matter, though they can easily make us lose sight of our long-term time horizon. We do not make investment decisions based on timing or predicting the outcomes of wars or the price of oil. Not only because macro-driven events are notoriously difficult to predict with any consistency, but more so because we believe they will work themselves out. In the 20th century, the Dow Jones Industrials Average advanced from 66 to 11,497 – an increase of 17,391% (excluding dividends) despite four costly wars, a Great Depression, and countless recessions. Not to be cavalier about the increased geopolitical risks and their consequences but in an unlikely scenario we are wrong – beating an Index will be the least of our problems. So, with rationality and pragmatism prevailing as our default setting, we focus on separating the signal from the noise and identifying the statistically significant events that help us build conviction in the investment thesis for a long-term success of a business.

“AI has moved from being a novelty to becoming something that is really useful! Inferencing is exploding and we are standing smack in the middle of this tornado.” 
– Andrew Feldman, CEO of Cerebras⁵.

One of the main investor concerns over the last six months has been that the mammoth increases in capex and capacity buildouts were not accompanied by the clear evidence of revenue generation. This is no longer the case. The most significant development in the quarter, in our opinion, was the dramatic acceleration in AI adoption and usage. Witness the curious case of Anthropic, the maker of Claude Code and Claude Cowork, which reported annualized recurring revenues (ARR) of $9 billion at the end of 2025, projecting to reach $30 billion in ARR exiting 2026. The company then proceeded to add $4 billion in ARR in January, $6 billion in February, and a mind-boggling $11 billion in five weeks through the first week of April⁶, surpassing the $30 billion target for 2026. Anthropic added over $21 billion in net new ARR in just over one quarter. Think about that for a minute… Dario Amodei, the company’s CEO, disclosed a few months ago that a majority of revenues are coming from enterprise customers with over 1,000 companies paying over $1 million in ARR. These are the most coveted customers in the world that every business dreams of getting. When will AI revenue finally show up? Well… it just did! While clearly the most impressive, Anthropic is not alone. OpenAI’s ARR surpassed $25 billion⁷ from $20 billion at the end of 2025. As of the writing of this letter, no public company has reported its first quarter results, but we did get a glimpse from Amazon’s CEO, Andy Jassy, who released his 2025 Letter to Shareholders on April 9.⁸ Amazon AI is now at a $15 billion revenue run rate (260 times larger than original Amazon Web Services (AWS) at the same point), their combined custom chips business (Graviton, Trainium, and Nitro) is now at a $20 billion ARR, growing triple-digit percentages year-over-year, implying approximately 13% of total AWS revenues. And that number is understated since they are monetizing the chips themselves. If it was a standalone business selling to third parties, their ARR would be $50 billion. AWS continues to be capacity constrained – growth would be higher if they could serve it. At 8.8% of the Fund’s net assets, Amazon is our second largest holding – we would own more if we could.

Culture, Structural Moats, Adaptability to Change, & What’s Not Going to Change

“I very frequently get the question: 'What's going to change in the next 10 years?' And that is a very interesting question; it's a very common one. I almost never get the question: 'What's not going to change in the next 10 years?' And I submit to you that that second question is actually the more important of the two -- because you can build a business strategy around the things that are stable in time." 
– Jeff Bezos⁹

We have often used this quote when analyzing and thinking deeply about the companies we invest in. What attributes of successful businesses will not change in the world of AI?

• Solving real problems for customers.
• Doing it in a way that is unique – with competitive advantages that are durable.
• Being adaptable to change – see our 4Q2025 letter for an in-depth discussion.
• Management that thinks and acts like owners of the business, optimizing for the long term.
• Management that is willing to make big bets when inflection points (a disruption) become clear.

Here too, Amazon’s shareholder letter is instructive – addressing all these points. Jassy begins with what won't change: "We believe that customers will always care deeply about massive selection, low prices, very fast delivery, ease of use, and how they're treated." But he argues that AI will reshape how those needs are served, and that leaders must resist the temptation to simply bolt AI onto existing experiences: "The trick for leaders, ourselves included, is how to get organized and convicted about going back to the starting line and reimagining your experiences from a clean sheet of paper." If this sounds familiar, it is because this is exactly how Elon Musk has described his approach to innovation. It is all about first principles, reimagining the entire experience, disregarding the “this is how we’ve always done this” mentality and thinking.

Jassy then describes what adaptable culture looks like in practice – when Amazon's Bedrock team realized it needed an entirely new inference engine, rather than patching the existing one, it spun out a group of six engineers who rebuilt the architecture from scratch in 76 days using Amazon's own AI coding tool, Kiro. The result – an engine called Mantle – became the backbone of Bedrock, which nearly doubled month-over-month in March and processed more tokens in Q1 2026 than in all prior years combined. We see the same willingness to go back to the drawing board at Meta, where Founder and CEO Mark Zuckerberg last summer recruited Scale AI founder Alexandr Wang to rebuild Meta's AI program from the ground up, restructured the entire organization around a new Meta Compute initiative, and is now flattening teams as AI makes it possible for "projects that used to require big teams" to be "accomplished by a single, very talented person." Output per engineer at Meta rose 30% in 2025, with power users up 80%. On April 8, much earlier than expected, Meta released its new AI model, “Muse Spark”¹⁰ that seems to have taken a massive step forward in capabilities.

The right culture and organizational structure are preconditions for this kind of adaptability. According to Jassy, "You need to move fast, have teammates that act like true owners, and be scrappy. At Amazon, we talk a lot about operating like the world's biggest startup. It's the primary reason we've worked to flatten our organization last year." Shopify CEO, Tobi Lütke, has taken adaptability further than perhaps any leader in our portfolio: in April 2025 he published an internal memo¹¹ declaring "Reflexive AI usage is now a baseline expectation at Shopify," mandating that before requesting new headcount, teams must demonstrate why AI cannot do the job.

Many of our most successful investments share one attribute: founder-led management that thinks and acts like long-term owners. Jensen Huang has led NVIDIA for 33 years since founding it in a Denny's in 1993. Tobi Lütke has led Shopify for over two decades. Mark Zuckerberg has run Meta since founding it at age 19. As Jeff Bezos wrote in his original 1997 shareholder letter – which Amazon still appends to every annual report as a statement of enduring values – "We will continue to focus on hiring and retaining versatile and talented employees... each of whom must think like, and therefore must actually be, an owner."

And when the inflection is big enough, Jassy argues, you must bet disproportionately. Amazon guided 2026 capex to $200 billion. "If you believe you've found one of these disproportionate shifts, you want to invest as aggressively as you responsibly can. This will create investment spikes that will invite scrutiny, but the game-changers don't typically accommodate smoother investment horizons… Inflections aren't usually smooth or calm. They favor the bold and adaptable." This is exactly what Alphabet did with its custom AI accelerators, the TPUs, early version of which was unveiled in 2016, long before the ChatGPT moment, or when it started the autonomous driving project in 2009. Just like Amazon’s chips above, Alphabet’s TPUs are a huge driver of Google Cloud Platform’s growth and Waymo was recently valued at $126 billion.

What does AI mean for the durability of competitive moats?

Does AI accelerate disruptive change? Yes. Does it reduce barriers to entry? Yes. Does it make it easier to copy features and functionality from competitors? Yes. Does it mean that competitive advantages are no longer sustainable? Not in our view. Instead, we would argue that AI changes the nature of competition, increasing the importance of structural competitive moats while reducing the durability of simple, product/feature/workflow-based moats. Some of the structural competitive moats that in our view remain durable include the following:

• Platform businesses with network effects – Amazon is the poster child for network effects where a high number of loyal consumers (repeat buyers) attracts the highest numbers of merchants who offer the widest variety of products at very competitive prices, which attracts more loyal consumers and so on. Meta offers over 3.5 billion active users with consistently high engagement and some of the best returns on ads spent, which makes it indispensable to advertisers. Cloudflare built a network that operates in over 330 cities across 125 countries where it cross-connects its customers directly with origin servers, bypassing the public internet, significantly reducing latency and reducing costs. The more traffic flows through Cloudflare, the better its routing intelligence becomes, making it more attractive for the next customer. AI further reinforces this moat as its close physical proximity to users globally enables it to offer low-latency AI inference, which in turn drives demand for its core offerings. Matthew Prince, Cloudflare’s CEO articulated it on a recent earnings call: “This creates a virtuous flywheel: more agents drive more code to Cloudflare Workers, which fuels demand for our performance, security, and networking service”. Shopify’s network effects are multi-faceted – the millions of merchants on its platform with real time transaction-level data enables it to innovate rapidly, having a front row seat to what makes merchants successful. That same data powers a virtuous cycle across the business: it fuels AI Sidekick, which uses aggregated insights to suggest actions that help merchants improve their operations; it enables Shopify Capital to underwrite loans to merchants with superior risk models. Shopify’s scale on the consumer side (over 150 million consumers use Shop App and Shop Pay) and consumer trust drives higher conversion rates for Shop Pay (its instant purchase button), making Shopify more attractive to prospective merchants. In agentic commerce, the two-sided merchant-consumer network effect compounds further: as more merchants join, the product catalog becomes richer, making it the most attractive ‘rails’ for AI chatbots to access the widest selection of products, which in turn attracts more merchants to Shopify. Harley Finkelstein on a recent earnings call: “No one, and I mean no one, understands this like Shopify… This is a transitional moment in Shopify's history. We are now designing the new normal, just like Tobi predicted a decade ago, and it will fundamentally change our position in the world.”
• Proprietary data moats – In the age of AI, continuously generated proprietary data that enables ongoing product improvement is an important moat. It cannot be replicated from public sources by foundation models. CrowdStrike processes trillions of endpoint security events globally. CEO George Kurtz, described it on a recent earnings call: “Our data moat creates a structural advantage no LLM provider can replicate.” Snowflake’s Cortex Code (CoCo), unlike generic coding agents, operates natively inside Snowflake with deep awareness of each customer’s schemas, permissions, governance rules, and data relationships – context that no external AI tool can access. As CEO Sridhar Ramaswamy explained: "It understands Snowflake intimately, all its different capabilities. We are seeing productivity gains of 5 to 10 times."¹² Each interaction makes CoCo smarter about that customer's environment, creating a feedback loop that widens the moat over time, by increasing the value of Snowflake for its customers. Samsara has built one of the world’s largest operational data assets with 14 trillion data points processed annually including over 90 billion miles driven, and millions of devices reporting millions of GPS points per minute across 99% of major U.S. roads. This proprietary data enables it to better train video-based safety AI models, optimize fleet routes and driver workflows, and introduce new products that competitors cannot match (such as Asset Tags), which are capable of tracking non-vehicle assets due to existing network density. Samsara is driving better outcomes than competitors with fewer accidents per fleet, higher cost savings, lower insurance premiums, less idle time, and better driver retention, which in turn leads to strong customer retention, better new logo win rates, faster market share gains, and more pricing power.
• Economies of scale – MercadoLibre is a great example of how scale creates a self-reinforcing cycle. Greater volume drives lower shipping costs per package, enabling the company to reduce its free shipping threshold, which drives higher purchase frequency, expands the addressable market to lower-cost everyday items, and attracts more buyers and sellers, which further improves logistics density, reducing unit shipping costs and so on. In the Summer of 2025, MercadoLibre lowered its free shipping threshold in Brazil and the results were striking: items sold accelerated from 26% growth in Q2 to 42% in Q3 and 45% in Q4. Unique buyers crossed 80 million for the first time, and the company achieved record market share gains in both Brazil and Mexico – all while unit shipping costs in fulfillment fell year-over-year. CEO Ariel Szarfsztejn on a recent earnings call: "Growth has accelerated, frequency has accelerated. We had record conversion rates, record retention rates for new and existing buyers. We are expanding market share and reaching record levels." Nearly 75% of fast shipments are now delivered within two days – services possible only at MercadoLibre's scale. Of course, Amazon’s scale in the U.S. (and other international markets in which it is a leader) similarly provides it with the density needed to have fast delivery at low-per-unit shipping costs that are hard for competitors to replicate.
• Manufacturing complexity and accumulated knowhow – TSMC manufactures approximately 90% of the world’s leading-edge semiconductors. Its moat is structural: building a cutting-edge fabrication facility costs over $20 billion and takes many years, but the real barrier is yield – the percentage of functional chips per wafer. TSMC has spent decades perfecting yields at each successive process node through continued manufacturing iterations, accumulating institutional knowledge over time that is proprietary and can NOT be replicated by AI models. Acceptable (i.e. high) yield is becoming increasingly more important and harder to achieve as chip complexity and prices increase over time. While Samsung and Intel also spend large amounts of capital building advanced fabs, they serve a fraction of TSMC’s customer base, which means they cannot amortize fixed costs as efficiently and cannot accumulate yield-learning data as quickly. This creates a self-reinforcing cycle: higher yields attract more customers for TSMC, which enables it to earn higher cross-cycle returns on its investment (while the diversity of its customers also reduces the overall cyclicality of the business), which funds more R&D, which enables TSMC to reach the next node quicker and with higher yields than competitors, which widens the lead further. Advanced nodes (7 nanometers (nm) and below) now generate 74% of TSMC’s wafer revenue. Broadcom has spent years building the co-design relationships, custom silicon, and networking capabilities that make it the only scaled player helping hyperscalers and large AI labs to design their AI accelerators, which has now become a significant businesses for the company with AI growth accelerating at scale to 106% year-on-year growth in the last quarter, reaching $8.4 billion. It is expected to exceed $100 billion in 2027.
• Regulatory moats, switching costs and razor-razor blade model – Intuitive Surgical’s da Vinci robotic-assisted surgical systems installed base exceeds 11,000 globally. Each procedure performed, generates data that improves surgical outcomes, driving stickiness with customers through a razor-and-blade consumable revenue model. Eli Lilly holds FDA approvals for GLP-1 drugs (injectables and oral) with patents, clinical data, and physician trust that cannot be replicated by an AI algorithm.

We have decades of experience in identifying and investing in businesses that are beneficiaries of disruptive change. While the AI disruption feels like the most significant and challenging disruption of our careers (and frankly, our lives), we have built internal processes that we believe have prepared us well for navigating it. We have learned to think probabilistically (expected value = every possible outcome multiplied by the probability of each outcome happening) and believe there is an advantage in allocating capital against the entire range of outcomes rather than the best, the worst or even the most likely outcome. We guard against behavioral biases and systematically seek out disconfirming evidence to stress-test and re-underwrite the key assumptions that form an investment thesis for every company that we own. The goal is to reduce investments in businesses where our conviction level has lessened and increase investments where our conviction level has increased.

We analyzed the current valuation multiples for our companies and compared them to the average valuation multiples over the last five years.¹³ The weighted average multiple for the portfolio at the end of the quarter was 20.9% below its average over the last five years. We believe that the current geopolitical tension, combined with apprehension and uncertainty created by the AI disruption have created an attractive buying opportunity for U.S. large-cap investors. The Fund’s 10% correction experienced in the first quarter was driven entirely by multiple contraction, which bodes well for the Fund’s prospective returns.

Space Exploration Technologies Corp. (SpaceX) is a high-profile private company founded by Elon Musk. The company's primary focus is on developing and launching advanced rockets, satellites, and spacecrafts, with the ambitious long-term goal of making life multi-planetary. SpaceX is generating significant value with the rapid expansion of its Starlink broadband service. The company is successfully deploying a vast constellation of Starlink satellites in Earth's orbit, reporting substantial growth in active users, and regularly deploying new and more efficient hardware technology. Furthermore, SpaceX has established itself as a leading launch provider by offering highly reliable and cost-effective launches, leveraging the company's reusable launch technology. SpaceX capabilities extend to strategic services such as human spaceflight missions. Moreover, SpaceX is making tremendous progress on its newest rocket, Starship, which is the largest, most powerful rocket ever flown. This next-generation vehicle represents a significant leap forward in reusability and space exploration capabilities. We value SpaceX using prices of recent financing transactions.

Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (TSMC) shares rose 11.5% during the first quarter, as revenue growth of 20.5% (25.5% in USD) exceeded expectations due to surging demand for AI chips. TSMC dominates the advanced semiconductor foundry market, controlling over 90% share of cutting-edge sub-7 nm nodes that power AI servers, flagship smartphones, and autonomous vehicles. The company benefits from a virtuous cycle in which its massive scale and profitability generate the capital necessary to fund industry-leading R&D and capex, in turn widening its technological moat and reinforcing its pricing power. As the ultimate picks-and-shovels provider of the AI era, TSMC remains insulated from the competitive dynamics of the AI chip design ecosystem. Whether hyperscalers develop custom accelerators or deploy merchant GPUs from companies like NVIDIA and Advanced Micro Devices, nearly all advanced AI accelerators are manufactured exclusively at TSMC’s 3nm and 5nm nodes. We believe TSMC will deliver 20% earnings growth over the next several years, supported by secular AI-driven demand for leading-edge manufacturing capacity.

Shares of semiconductor equipment company ASML Holding N.V. increased 23.6% in the first quarter due to robust demand for its lithography systems amid a strong AI-driven semiconductor capex cycle. ASML holds a monopoly on extreme ultraviolet (EUV) lithography, the indispensable technology required to manufacture the world's most advanced chips at 7 nm and below. Without EUV, chipmakers cannot economically achieve the transistor densities needed to power AI accelerators, flagship smartphones, and autonomous vehicles. As leading chipmakers including TSMC, Samsung, and Micron race to expand advanced manufacturing capacity to meet surging AI demand, ASML sits at the center of the global semiconductor ecosystem as an indispensable enabler. Moreover, we expect a strong product cycle over the next five years as High-NA EUV – the next-generation platform delivering superior resolution and continued transistor scaling – enters high-volume manufacturing. We also project significant gross margin expansion, driven by ASML's pricing power and increasing scale, supporting strong double-digit earnings growth.

Shares of Shopify Inc., the leading global commerce operating system, declined 26.3% during the first quarter, as a broader software selloff compressed high-multiple growth stocks. The business itself delivered an exceptional year: gross merchandise value (GMV) grew 30% - adding $86 billion of incremental volume - revenue grew 30%, and free cash flow grew 26% to over $2 billion. Management guided to low-30s revenue growth for Q1 2026, above the roughly 25% most analysts had modeled. Q1 FCF margin guidance of low to mid-teens reflects deliberate continued reinvestment in the business to take advantage of the large opportunity ahead. Enterprise penetration remains in early innings: merchants above $25 million GMV are growing faster than the broader business, and Shopify holds low single-digit share of the $2.4 trillion enterprise e-commerce market. Shop Pay GMV of $121 billion grew 62% and now exceeds 50% of U.S. payments volume - a consumer trust signal with advertising optionality via the Shopify Product Network. We view the drawdown as an opportunity to own an exceptional business at a more attractive entry point and see a path for attractive multi-year compounding from current prices.

Shares of Meta Platforms, Inc., the world’s largest social network, declined 13.1% in the first quarter. While Meta reported strong quarterly results with 24% year-on-year revenue growth and 41% operating margins and issued a solid Q1 revenue guidance of 29% year-on-year growth rate at the high end (in constant currency), management guided to full-year 2026 operating expenses above Street expectations, implying a 40% increase year-on-year, and raising concerns that it may be overspending on AI for less clear returns relative to competitors. Near the end of the quarter, Meta also lost a jury verdict finding that its design choices led to user harm. Additionally, broader ad budgets became more uncertain due to the conflict in Iran. While we continue to monitor the regulatory landscape, we believe the company can drive premium revenue and profit growth in the foreseeable future. Meta benefits from AI investments across its core business, driving improvements in content recommendations (with rising time spent) and in ad targeting and ranking (leading to higher conversions and better return on ad spend). Longer term, Meta’s leadership in mobile advertising, massive user base, innovative culture, leading generative AI capabilities, and technological scale, position it well for continued strong performance, with additional monetization opportunities ahead in areas such as smart glasses and commerce.

Snowflake Inc. is a cloud data platform primarily used for data analytics. Shares declined 31.2% during the quarter, as investors became increasingly concerned that AI-native competitors could disrupt traditional software vendors. Even so, the company posted solid results, with product revenue growth of approximately 30%, best-in-class 125% net revenue retention, record new customer wins, and robust cash generation. Backlog continued to build momentum, with accelerating growth as the company inked its largest contract ever, valued at over $400 million. Snowflake’s product innovation also remains strong, as the company rapidly embeds AI capabilities across its platform to better address customer needs. Its AI product suite has become the fastest growing offering in the company’s history, already generating over $100 million in annualized revenue, with newer tools such as Snowflake Intelligence and Cortex Code now being used by thousands of customers. These developments support our long-term conviction in Snowflake’s ability to sustain durable growth and maintain its position as a foundational data platform, even if near-term volatility persists.

The Fund is constructed on a bottom-up basis with the quality of ideas and level of conviction playing the most significant role in determining the size of each investment. Sector weights tend to be an outcome of the portfolio construction process and are not meant to indicate a positive or a negative view.

As of March 31, 2026, the top 10 holdings represented 66.8% of the Fund, and the top 20 represented 94.1%. We exited the quarter with 26 investments, down from 31 as of the end of 2025.

IT, Consumer Discretionary, Communication Services, Health Care, and Financials made up 92.0% of net assets. The remaining 8.0% was made up of SpaceX, a private investment classified as Industrials, and cash.

During the first quarter, we initiated a new position in the electrical, electronic, and fiber optic equipment provider, Amphenol. We reduced six existing investments and exited five others as we decided to reduce our exposure to software and to further concentrate on our highest conviction ideas that we expect to be the winners in the age of AI.

This quarter we initiated a position in Amphenol Corporation, a leading provider of high-technology interconnect, sensor, and antenna solutions to a diverse set of end markets. Amphenol is a highly diversified business operating in seven different end markets – Industrial, Automotive, Mobile Devices, IT Datacom, Communications Networks, Defense, and Commercial Aerospace. The company’s mission-critical products are needed in electrical systems to move data, transmit signals, and enable specific outcomes. As the world electrifies and more systems move from analog to digital, Amphenol’s content opportunity grows.

The hallmark of the company is its unique, decentralized “Amphenolian” culture in which over 140 general managers each have autonomy over their individual business units. This leads to a highly agile organization that can quickly respond to market trends (speaking of adaptability to change) with best-in-class products and deliver them on a global scale. This culture has enabled the company to compound growth in revenue and cash flow over many years through both above-market organic growth and a long history of successful M&A. Culture is set from the top, with long-time CEO Adam Norwhitt saying on many occasions that his number one priority is to preserve and scale the unique Amphenolian culture. He has been a great capital allocator over his more than 15 years as the CEO, and we expect that to continue.

Amphenol historically had a balanced exposure across many end markets, delivering consistent organic growth above an underlying interconnect end market already growing a healthy mid-single-digit rate over time. Recently, however, Amphenol’s exposure to data center infrastructure spending through connectors and cables in AI server racks drove a significant growth acceleration, with its IT Datacom segment now close to 40% of sales having grown from a less than $3 billion annual run rate to a $10 billion run rate as of the most recent quarter over just two years. While usually companies progress from being Big Ideas to Durable compounders, in this case, we are seeing the opposite trend as Amphenol is increasingly becoming a Big Idea thanks to its AI business and the significant AI buildout, which we believe will continue.

The stock, however, has experienced volatility recently due to a debate around the company’s content in future AI racks moving to optical networking from copper given Amphenol has historically been considered a strong player in copper and less so in optical. We believe shares have been overly penalized on this risk underestimating Amphenol’s ability to innovate and adapt as it has over many years and across many cycles and end markets – creating a solid entry point for long-term investors. The company recently closed its largest acquisition in history in CommScope Connectivity and Cable Solutions for $10.5 billion, an optical specialist, and management consistently talks about how they are always in conversations with key customers about multiple generations of product roadmaps into the future. It is clear why Amphenol was so excited to acquire CommScope, let alone for a very reasonable over 12 times 2025 EBITDA, and we have strong confidence that the team can continue to deliver and have the right products at the right time to serve the market’s needs as they did in the current wave of AI capex.

While we expect the data center segment to continue to lead growth for the company, the rest of the business is also delivering outstanding growth having finished 2025 with 10% organic growth despite a weak global industrial spend environment, once again reflecting the unique franchises throughout the company. Margins are also at all-time highs and are expected to continue to expand as sales volume grows over time. Through a combination of organic growth both within the IT Datacom segment and throughout its other end market exposures, continued margin expansion, capital allocation towards accretive M&A, and a strong management team grounded in a unique culture, we believe the company has a long runway for growth ahead.

“You manifest a future so convincing that there is no way it won’t happen – and then you endure the suffering in between.” 
– Jensen Huang (NVIDIA’s Co-Founder and CEO) on Lex Fridman podcast, March 2026¹⁴

Jensen Huang’s philosophy captures perfectly how we think about investing in disruptive change. That is what investing in Big Ideas requires. It is never a straight line. There is always suffering in between. There are drawdowns, counter-narratives, and events that test your conviction and make you lose sleep at night. Patience, ability to separate the signal from the noise, and courage of conviction are required to stay the course. While the talking heads are fixated on the price of oil or the latest posts on Truth Social, we believe we are on the cusp of something extraordinary. Jensen revealed a $1 trillion order book and proclaimed that OpenClaw “did for agentic systems what ChatGPT did for generative systems.” Dario Amodei from Anthropic said we are “near the end of the exponential.”¹⁵ Elon Musk called AI “the supersonic tsunami.”¹⁶ Across our portfolio – from Snowflake to CrowdStrike, Cloudflare to Shopify, Amazon to Alphabet – the companies we own are reporting positive early data points on how AI is likely to be transformational for their businesses.

Every day we live and invest in an uncertain world. Well-known conditions and widely anticipated events, such as Federal Reserve rate changes, ongoing trade disputes, government shutdowns, and the unpredictable behavior of important politicians the world over, are shrugged off by the financial markets one day and seem to drive them up or down the next. We often find it difficult to know why market participants do what they do over the short term. The constant challenges we face are real and serious, with clearly uncertain outcomes. History would suggest that most will prove passing or manageable. The business of capital allocation (or investing) is the business of taking risk, managing the uncertainty, and taking advantage of the long-term opportunities that those risks and uncertainties create.

We are optimistic about the long-term prospects of the companies in which we are invested and continue to search for new ideas and investment opportunities while remaining patient and investing only when we believe target companies are trading at attractive prices relative to their intrinsic values.

We thank you for your continued trust and for being our partners in this journey.

Sincerely,