Baron Fifth Avenue Growth Fund | Q4 2025

Dear Baron Fifth Avenue Growth Fund Shareholder,

We had a solid fourth quarter to finish another good year.

Baron Fifth Avenue Growth Fund® (the Fund) was up 3.3% in the fourth quarter, which compared favorably to the 1.1% gain for the Russell 1000 Growth Index (R1KG), and the 2.7% gain for the S&P 500 Index (SPX), the Fund’s benchmarks.

For the year, the Fund finished up 18.2% compared to gains of 18.6% and 17.9% for the benchmarks, respectively, and a 16.1% gain for the Morningstar Large Growth Category average (the Peer Group).*

It was an exciting year. After two years of strong market returns with the SPX posting consecutive 25%-plus gains (R1KG up 42.7% and 33.4%, respectively), and the Fund adding 57.6% and 37.8%, respectively, to its ledger, many thought we were due for a breather. We started on a positive note, and by mid-February, the Fund was up 8.7%. Then we started hearing about a new tariff policy and that breather – or a slow but sustained slide had begun. Shortly before “Liberation Day,” the R1KG was already down 10% for the year. As soon as the Liberation Day announcement hit, with its “reciprocal” tariff policy the market dropped like a rock. By April 8, the Index was down 23.0% from its February peak. But the tariff policy was quickly adjusted: most tariffs got suspended due to trade negotiations with many countries, and markets rallied again. By midsummer, the TACO trade was on. No one believed in 120% tariffs on China and the 25% tariff on Mexico and Canada only hit a limited number of goods not covered by the USMCA, which was negotiated by this Administration in its first term. The Fund had an excellent second quarter, both on an absolute and relative basis recording a 24.9% gain to check-in up 8.2% at the half-year mark ahead of the 6.1% and 6.2% returns for the Fund’s benchmarks.

X.AI Holdings Corp. (xAI) was formed through the merger of X (formerly Twitter) and xAI to “understand the true nature of the universe." Shortly after its founding, xAI released Grok, an AI model that has quickly emerged as a leader, reflecting meaningful advances in the company’s technology. Grok’s performance has been fueled by the rapid deployment of xAI’s proprietary data center infrastructure: Colossus 1 became operational in 122 days with 100,000 GPUs, while Colossus 2 deployed 100,000 GPUs even faster, positioning xAI to become the first operator of a one-gigawatt data center. Grok 3 was the first model trained entirely on xAI’s own infrastructure, and Grok 5 is expected to leverage the expanded capacity of Colossus 2 to drive further material improvements in capabilities. Engagement on X has already benefited from the replacement of legacy code with Grok’s recommendation engine. These milestones highlight xAI’s ability to accelerate innovation and its potential to secure a durable leadership position in the competitive AI industry. We value the company based on recent material secondary transactions in its shares, which have contributed to appreciation in the stock.

Meta Platforms, Inc., the world’s largest social network, detracted from performance as shares declined 10.0% in the fourth quarter, though still finished 2025 up 13.1%. While Meta reported strong quarterly results with 25% revenue growth (year-on-year in constant currency) and 40% operating margins (both above expectations) and provided solid forward revenue guidance, 2026 capital and operating expenditures guidance was above Street expectations, raising concerns that it may be overspending in AI for less certain returns relative to competitors. While hyperscalers have an existing cloud business, through which they rent out GPUs and can therefore generate a short-term return on their AI spend, Meta doesn’t have a cloud business and so its investment profile is longer-duration in nature. Still, we believe Meta continues to benefit from its AI investments across the 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). Our industry checks also validate strong advertiser adoption and satisfaction, including in newer areas such as easy-to-use AI creative tools and business messaging. We believe Meta will begin to realize returns from its AI investment or rationalize spending over time. Longer term, Meta’s leadership in mobile advertising, massive user base, innovative culture, leading generative AI research and distribution, and technological scale position it well for continued performance, with additional monetization opportunities ahead in areas such as smart glasses and commerce.

Shares of Coupang, Inc., Korea's largest e-commerce platform, declined 26.7% in the fourth quarter (even though they finished 2025 up 7.4%). The weakness was initially driven by elevated upfront investments in its new market, Taiwan, where aggressive customer acquisition, supplier onboarding and product procurement, and logistics infrastructure buildout weighed on near-term profitability, as the company is expanding into a large new total addressable market underpinned by positive early data points. Investor sentiment was further pressured by a recent customer data breach incident, which raised short-term concerns around compliance costs, reputational risk, and potential regulatory scrutiny. A softer domestic consumption backdrop in Korea toward year-end also contributed to a more cautious market positioning. These dynamics drove a material multiple contraction, which was responsible for over 100% of the decline in the shares during the quarter. Despite these headwinds, our conviction in Coupang remains intact. We view the data security issue as operational rather than structural, with no evidence of lasting customer attrition or erosion in competitive positioning. Over the longer term, we believe that Coupang will continue to gain market share in its core business while leveraging its differentiated fulfillment infrastructure and technology to scale new services and expand into new markets. We remain invested.

MercadoLibre, Inc. is the leading e-commerce marketplace across Latin America. Shares of MercadoLibre declined 13.8% in the quarter (although finished the year up 18.4%) on near-term concerns of margin pressure and longer-term concerns over competition. Competitive intensity in Brazil has increased during the second half of the year, as Amazon and Shopee ramped up promotional activity, prioritizing growth over margins. In parallel, MercadoLibre decided to expand free shipping thresholds, and increased marketing spend, driving fears of near-term margin compression. Investors also became increasingly worried that agentic AI could slow gross merchandise value growth and pressure take rates by reducing marketplace product discovery and high-margin advertising revenue growth. Continued volatility in Argentina, one of MercadoLibre’s higher-margin and fastest-growing markets, further prompted worries that slower economic growth would lead to slower growth in profits. While these factors drove near-term stock weakness, as nearly all of the underperformance in the quarter was driven by multiple contraction, we maintain conviction in MercadoLibre’s long-term opportunity as the company is positioned to capture a large share of Latin America’s underpenetrated e-commerce and fintech markets, with superior logistics capabilities, brand trust, and a powerful ecosystem that provides significant competitive advantages.

The Fund is constructed on a bottom-up basis with the quality of ideas and conviction level 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 December 31, 2025, our top 10 holdings represented 59.8% and our top 20 represented 87.9% of the Fund’s net assets, respectively. This compares to weightings of 58.9% and 84.5%, respectively, at the end of 2024. We finished the year with 31 investments. IT, Consumer Discretionary, Communication Services, Health Care, and Financials made up 96.5% of net assets. The remaining 3.5% was made up of GM Cruise and SpaceX, two of our three private investments classified as Industrials (the third one is xAI which is included in Communication Services), and cash.

The Fund’s turnover was 17.9% in 2025, compared to an average turnover of 18.8% over the last three years, and 21.9% average turnover over the last five years.

During the fourth quarter, we initiated two new investments, both in the semiconductor space: the leading fabless semiconductor and software giant, Broadcom, and a leading power components and systems supplier, MPS. We also participated in a new funding round in Elon Musk’s AI company, xAI, where we added to our existing position.

We increased the size of our investment in nine existing holdings, including the leading cloud-based software provider for physical operations, Samsara, a leading cloud-based collaboration software provider, Atlassian, a leading alternative asset manager, KKR, a leading cloud-based cyber-security platform, CrowdStrike, the leading next-generation sequencing platform, Illumina, the leading semiconductor manufacturer, TSMC, a leading cloud-based data platform, Snowflake, and the leading Korean e-commerce platform, Coupang. We trimmed four existing positions in Adyen, ASML, ServiceNow, and Block and sold two investments – Veeva Systems which is further along in its growth lifecycle, and Trade Desk, where competitive intensity increased, prompting us to reallocate to ideas in which we saw a more favorable risk/reward.

During the fourth quarter, we initiated a new position in Broadcom Inc., which designs and supplies semiconductor and infrastructure software solutions that sit at the core of modern computing and networking. The company is a global leader in high-performance digital and mixed-signal technologies spanning networking, connectivity, storage, and custom accelerators. Through its VMware acquisition, Broadcom also owns critical software layers used to virtualize and manage large-scale compute environments.

As returns on model scaling remain compelling (the intelligence of models grows with the scale of the compute and the amount of data on which models are trained), leading AI labs are investing aggressively in larger, more specialized infrastructure. While NVIDIA remains the default merchant platform, especially thanks to its rapid innovation cycles, leading AI labs are increasingly seeking to diversify some portion of their compute clusters at a more efficient cost structure especially for large workloads that are relatively stable (and hence don’t require the flexibility inherent in a generalized infrastructure such as GPUs). Broadcom is uniquely positioned to enable this dynamic. It is the only scaled merchant supplier capable of co-designing custom accelerators and networking solutions with hyperscalers and frontier AI labs, and reliably delivering them into high volume production.

Broadcom has seen strong momentum in AI, with their key customer Google continuing to ramp and additional large customers entering significant volume production. The company ended its fiscal 2025 with AI revenue growth of 65%, which reached $20 billion (nearly one-third of total revenues), with quarterly AI revenues up 10 times in the last 11 quarters. Broadcom also announced overall AI backlog of $73 billion, which is almost half of the company’s total backlog of $162 billion. It now has 5 XPU (AI accelerator) customers. Despite the robust growth, Broadcom guided AI revenues to further accelerate in fiscal year 2026.

In addition, VMware integration progresses and the non-AI semiconductor businesses appear to be bottoming, which has driven overall company growth to 24% in fiscal year 2025 with 67% EBITDA margins. We believe that Broadcom’s growth runway is long as an enabler of a full-stack solution as demand is expected to remain durable for years to come underpinned by the AI infrastructure build-out.

During the quarter, we also initiated a position in Monolithic Power Systems, Inc. (MPS), which designs semiconductor chips that control and deliver power inside electronic systems. Its products ensure that processors, memory, and sensors receive the precise power they need, safely and efficiently. MPS has built a leadership position in power management through deep system-level design expertise and highly integrated solutions that combine multiple functions into compact, high-performance devices. As CEO Michael Hsing puts it⁹, “[MPS] want to demonstrate in any segment of the market, we are the best; we have possessed the best technology and best customer service.”

MPS is positioned to benefit from two major long-term shifts: the redesign of data centers for AI and the transformation of vehicle electrical architectures. AI is driving a rapid increase in power demand inside data centers. Servers that once consumed modest power in the sub 10 kilowatt per rack, now require many times more with NVIDIA GB200 servers, which are currently in volume production, consuming around 120 kilowatt per rack. Next-generation AI systems will see further increase in power density. This is forcing a rethink of how power is distributed, converted, and managed inside servers and racks. As power levels rise, systems require more sophisticated and higher-value power solutions. Even if server shipments fluctuate over time like in a typical cycle, the amount of power hardware per system is set to grow for many years. This creates a durable growth tailwind for MPS across servers, accelerators, memory, networking equipment, and rack-level power systems. In parallel, automobiles are shifting from many small electronic units to a few powerful central computers and from traditional 12-volt systems towards higher-voltage architectures. Modern vehicles increasingly resemble advanced computers on wheels, with growing power needs and tighter efficiency and reliability requirements. These changes significantly increase the amount of advanced power management components per vehicle and expand MPS’s role from specific subsystems into broader, system-level power delivery.

Considering that MPS still represents only low single-digits percentage of the analog industry, even though it has grown revenues by over 8 times and EPS by over 9 times in the last decade (representing CAGRs of 23.6% and 25%, respectively), we believe runway for growth remains long. Moreover, we believe that the company’s expansion into modules presents an additional opportunity as modules still represent only 10% to 15% of revenues and have 3 to 4 times the ASP compared to chips. In addition, we believe that MPS’s leading competitive positioning in power management would enable it to benefit from both the AI infrastructure build-out and the long-term electrification and computing transformation of the automobile, further reinforcing the company’s growth tailwinds.

During the fourth quarter we also invested in Series E of X.AI Holdings Corp. (xAI), adding to our original investment from 2024. XAI is a private company formed through the merger of X (formerly Twitter) and xAI, Elon Musk’s AI company founded in March 2023 to “understand the true nature of the universe.” The combination pairs xAI’s LLMs with X’s real-time data and global distribution, accelerating AI development while giving X an opportunity to modernize the platform by replacing legacy code with AI-driven tools.

We believe that xAI’s social media activity should benefit significantly from embedding AI capabilities that increase engagement, support advertising growth, enable more multi-modal interactions, and improve platform safety and moderation. We also believe that integrating X Money into the ecosystem creates a large new market opportunity, amplified by the network’s sizable user base. Furthermore, xAI’s rapid progress positions the company to benefit from growing adoption across enterprises, governments, and consumers. The Macrohard initiative is expected to introduce advanced AI functionality that reshapes digital workloads, driving meaningful productivity gains at lower cost. Lastly, over time, combining xAI’s intelligence with robotics could expand its reach beyond software, enabling the company to transform workloads across both digital and physical environments.

We believe that xAI's compute capacity is a critical advantage in AI, and xAI has demonstrated an exceptional ability to deploy infrastructure quickly, at scale, and at competitive cost, strengthening its overall position. XAI is also among the few companies to develop frontier-level AI models. With growing compute resources, future model iterations should improve materially, supporting leadership in general-purpose intelligence. The company also has access to a unique and valuable asset: a real-time, global, multi-modal data stream, reinforced by a highly engaged and sophisticated user base. The Grokipedia initiative is improving data accuracy over time, further strengthening the company’s positioning as a trusted vendor.

We are excited about what is to come!

No, we are not talking about further interest rate cuts, deregulation, improved efficiency and productivity, increased M&A activity, and a more benign geopolitical background – things that are reasonably likely to happen that could provide a nice tailwind for the market and our stocks. No one gifted us a crystal ball this holiday season and even if we had one, we would not know how to use it. We do not know what is priced in or how the market would react to the events in the short term as they unfold. After a blockbuster three-year run with the Fund gaining 156.5% on a cumulative basis curbing our enthusiasm would seem to be in order. U.S. large-cap growth stocks are not cheap. The prospective returns are always negatively correlated to the recent ones and some normalization or return to the mean is somewhat likely. But truthfully – we have no idea.

As our crystal ball metaphor was meant to illustrate short-term market moves, as measured by quarters and any given years, are impossible to forecast. We know we have no edge there (we are not sure anyone does) and so we do not even try. However, when it comes to longer-term trends… we know something about taking advantage of that, and we are really excited about what we think is to come.

We are in the early stages of one of the biggest disruptive changes we have witnessed in our careers and perhaps in all human history. Invoking pattern recognition once again, this reminds us of the early 90s with the internet. Jeff Bezos, whose company was arguably at the epicenter of that transformation, remarked that “This is most like electricity. There was electricity, then compute, and now AI. These horizontal layers, they go everywhere. I guarantee there is not a single application that you can think of, that is not going to be made better by AI¹⁰.” Elon Musk, no stranger to disruptive change himself, said that “Probability that AI exceeds the intelligence of all humans combined by 2030 is about 100%.”¹¹

We own a portfolio of great businesses that we expect will create and realize a lot of value from this disruptive change over long periods of time.

As we do every year, to better understand the Fund’s performance, we deconstructed performance into its two components – change in multiples and change in the fundamentals. During the fourth quarter, the weighted average multiple¹² contracted by 5.7% and closed down 2.9% for the year. Since the Fund was up 3.3% in the quarter and up 18.2% during 2025, all of our performance in 2025 was driven by growth in fundamentals as opposed to the more unpredictable and volatile change in multiple – a positive data point for the Fund’s prospective returns. The fundamentals of our businesses also continued to improve during the year with consensus revenue expectations for 2026 increasing by 4.8% during the fourth quarter and by 9.4% during 2025¹³, and operating income expectations rising by 4.9% in the quarter and a similar 9.1% over the year.

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 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.

Sincerely,