Baron Global Opportunity Fund | Q3 2026

We had a good quarter.

Baron Global Opportunity Fund (the Fund) gained 3.3% (Institutional Shares), outperforming the 1.6% gain for the MSCI ACWI Index (the Index), and the 0.5% decline for the MSCI ACWI Growth Index, the Fund’s benchmarks.

Year to date, the Fund is up 24.6% compared to gains of 13.0% and 10.1% for the benchmarks, respectively.

Our last quarterly letter was primarily focused on covering two subjects: our high conviction in our investment in SpaceX, and why we believed the Fund was so much more than just SpaceX. Had we known that our largest holding – 20.2% of the Fund at the start of the quarter – would experience an 11.7% decline while the Index gained, we would have expected a difficult quarter. We would have been wrong. SpaceX’s fall, costing the Fund 269bps in the quarter, was squarely within the range of expected outcomes. Outperforming when our largest position was down double digits – was not. Though tempting, we do not think of it as evidence of the latter, but rather more as a fortuitous exception. Either way, we are happy with how it worked out.

On the surface, the Index’s 1.6% return and the Fund’s 3.3% gain might suggest a fairly uneventful quarter. It was anything, but. In fact, we can hardly remember the last uneventful quarter, and we do not expect one any time soon. The Fed raised interest rates for the first time in 3 years, and the 10-year Treasury yield (the risk-free rate) reached 5.3%, its highest level since 2002. Developments in the Middle East (think oil prices), Russia – Ukraine (think oil prices), trade wars and inflation, AI buildout and AI “bubble” debate, and of course the endless stream of X and Truth Social posts – the news continues to be delivered via a firehose!
 

Briefly on performance attribution.

Stock selection contributed 75bps while sector allocation added 97bps, combining to deliver 172bps of outperformance relative to the benchmark. Information Technology (IT) was our best performing sector, contributing 444bps to relative returns, with 369bps from stock selection – as our stocks gained 13.4% on average, compared to 4.4% for IT stocks in the Index. The systems software and internet services & infrastructure sub-industries drove 458bps of outperformance. We also benefited from strong stock selection in Health Care, as our holdings rose 26.3% compared to 3.7% for Health Care stocks in the Index, contributing additional 131bps to relative returns. This strong performance was partially offset by poor stock selection in Communication Services (SpaceX), Industrials, and Financials, which cost the Fund 486bps combined. Not having investments in Energy, the best performing sector in the Index, up 14.7%, cost us 46bps, which was more than offset by not owning any stocks in Utilities, Consumer Staples, and Real Estate.

From a geographical perspective, developed markets contributed 268bps to relative performance despite our 12.8% underweight, due entirely to strong stock selection. The U.S. contributed 178bps, while Canada (think Shopify) added 144bps. This was partially offset by emerging markets which detracted 74bps, primarily due to underperformance in Taiwan, Korea, and Brazil. In Taiwan, Taiwan Semiconductor Manufacturing Company (TSMC) fell 4.2% as investors took profits in AI beneficiaries. In Korea, Coupang continued to face short-term challenges stemming from the late-2025 security breach. In Brazil, Nu declined amid concerns about the potential impact of October’s elections on Brazilian consumers. By early October, following the first-round election results, Nu had more than recovered its third-quarter losses.

At the stock level, we ended the quarter with 19 contributors against 21 detractors. This was a good example of a strong slugging percentage overpowering a poor batting average to deliver the Fund’s 3.3% gain. Although fewer than half of our holdings contributed, our winners had a greater impact than our losers. Shopify, Cloudflare, and CrowdStrike added over 100bps each to absolute returns, while NVIDIA just missed, adding 99bps. Illumina, Snowflake, Heartflow, Zscaler, Netskope, and Eternal contributed over 50bps each. On the other side of the ledger, SpaceX detracted 269bps, while Forgent, Loar, and Coupang cost over 50bps, each. For all four of these companies, over 100% of the decline is attributable to multiple contraction, while their fundamentals continued to strengthen. We do not believe these declines will result in permanent losses of capital.
 

We believe more volatility is on Tap

Remember the “SaaSpocalypse” earlier this year with software stocks down 20% to 30%? We suffered through a 4.8% drawdown in the first quarter and struggled to explain the underperformance. In the Outlook section of that shareholder letter, we described how despite challenging stock performance these companies continued to report strong fundamental results. “Across our portfolio – from Snowflake to CrowdStrike, Cloudflare to Shopify, Amazon to Datadog – the companies we own are reporting positive early data points on how AI is likely to be transformational for their businesses.” Well… it took a few months for SaasPocalypse to turn into SaasUtopia (pronounced saas-topia, and yes, we made it up). The IGV software index is up nearly 50% from its April lows, while the SaaS-heavy EMCLOUD ETF is up approximately 85% from the same time, and the software stocks mentioned above are up even more. On the other side of the spectrum, the perceived beneficiaries of the AI buildout that were the main drivers behind market performance through the first half of the year, corrected sharply during the third quarter. The three sub-industries of semiconductors, semiconductor materials & equipment, and electronic components – which drove 68% of the Index’s return in the first half despite accounting for only 14.5% of its average weight – recorded double-digit declines in July, driven by shifting narratives and investor rotations.

The correlations within “themes” continue to converge, especially anything related to AI. The market’s herd-like behavior is causing entire sectors to go in and out of favor seemingly overnight. Meta is looking into renting out some of its AI infrastructure? They must have excess capacity or see declining demand. Sell! SpaceX announces large AI hosting deals with ROI payback of less than 12 months at much higher prices than previously heard of – Buy! Open-source models gaining market share? Sell! Sell! Hyperscalers reporting accelerating growth at massive scale – cloud revenue run rate accelerated to 50% growth in the second quarter to $420 billion⁴ - Buy! Buy! Anthropic announces that third quarter revenues were $16.8 billion, up around 12x from last year. This is a company that started selling anything less than three years ago. Think about this for a moment… the number disappointed investors because second quarter’s revenues of $11.5 billion were up about 14x and the company’s revenue growth at “only” 12x, has decelerated. Sell! Sell! Sell!

Sarcasm notwithstanding, in the early stages of disruptive change, high volatility is neither unusual nor unjustified! During the steep parts of technological disruption, S-curves small changes to key inputs create large changes in actual/eventual outcomes. It is far more difficult to predict the ultimate winners and losers in the early stages when uncertainty is at its highest. The world is becoming more capital intensive and asset heavy. According to Coatue⁵, AI data centers capex as a percent of GDP, has already exceeded the peak build out for Railroads in the early 1900s, Oil & Gas pipelines in the 70s and 80s, Fiber in the late 90s, and Shale gas in 2010s. So, the stakes are high and rising. Like in the butterfly effect, because the range of outcomes is the widest during the early parts of a paradigm shift any change, no matter how small or seemingly immaterial, must be assessed by investors with a healthy dose of humility and a realization that the future is inherently uncertain.

We continue to encourage investors to evaluate the Fund’s performance over a long-term horizon. Following the challenging 2021 and 2022 period, which still weighs on the Fund’s five-year results, the Fund has generated a 32.1% annualized return over the past three years, which compares favorably to 21.7% return for the Index and 18.0% return for the Morningstar Global Large-Stock Growth Category Average (the Peer Group) ranking it in the 3rd percentile. 

We believe that 10.4% annualized excess return over the Index and 14.2% annualized excess return over the Peer Group were a direct result of a challenging performance in the prior two years and are not sustainable. The longer-term, 10-year performance (which includes the 2021–2022 period), also remains strong with a 15.7% annualized return compared to 12.4% for the Index and 11.8% for the Peer Group, ranking it similarly in the 3rd percentile. The excess annualized returns of 3.4% and 3.9%, respectively, are more in line with our long-term stated goal of generating 300-400bps of alpha over the Index and Peer Group average over full market cycles, although there can be no assurance that we will achieve our goal. Since the Fund’s inception in April 2012, the Fund has outperformed the Index and its Peer Group by 2.9% and 3.5% per year, respectively.

As of September 30, 2026, the Morningstar Global Large-Stock Growth Category consisted of 293, 274, and 201 share classes for the 1-, 5-, and 10-year periods. Morningstar ranked Baron Global Opportunity Fund Institutional Share Class in the 1st, 79th, and 3rd percentiles, respectively.
Since inception rankings include all share classes of funds in the Morningstar Global Large-Stock Category. Performance for all share classes date back to the inception date of the oldest share class of each fund based on Morningstar’s performance calculation methodology.
Morningstar calculates the Morningstar Global Large-Stock Category Average performance and rankings using its Fractional Weighting methodology. Morningstar rankings are based on total returns and do not include sales charges. Total returns do account for management, administrative, and 12b-1 fees and other costs automatically deducted from fund assets.

Shopify Inc., a leading commerce platform for merchants of all sizes, contributed to performance with the stock up 29.9%. Second quarter results marked another quarter of exceptional execution, with gross merchandise volume (GMV) rising 32% year-over-year to $116 billion and revenue increasing 34%. This represented the fifth consecutive quarter of 30%-plus growth across GMV, revenue, gross profit, operating income, and free cash flow. Merchant solutions revenue grew 37% year-over-year on higher payments penetration, while operating income increased 68% and free cash flow margin expanded to 18% from 16%. Growth was broad-based across merchant sizes, geographies, and channels, with business-to-business GMV up 76% and offline GMV up 32%. Third quarter guidance for low 30% revenue growth and further operating expense leverage exceeded expectations. We retain conviction in Shopify and believe its two decades of proprietary merchant and buyer data position the company as a key beneficiary as AI-driven discovery and agentic checkout take on a bigger role in commerce over time.

Shares of Cloudflare, Inc., which operates one of the world's largest networks, delivering security, performance, and developer services, rose 41.6% during the quarter as investors increasingly view the company as foundational infrastructure for the agentic internet. In the second quarter, more than half of the traffic across Cloudflare's network was non-human for the first time, and the company is building the controls, developer tools, and payment rails to secure and monetize that shift. A broader cybersecurity recovery added a tailwind, as new AI-enabled threats heightened urgency among security buyers and partners reported broad-based acceleration across Cloudflare's portfolio. The company also reported strong growth in fundamentals: revenue growth accelerated to 36% year-on-year, large customers grew 27% with record net additions, and nearly two million developers joined its Workers platform in the quarter alone. We believe Cloudflare's scale and network architecture give it a durable advantage as AI agents reshape how the internet is used, and we remain confident in the long-term opportunity while remaining mindful of valuation following the stock’s substantial appreciation.

Leading cloud-native cybersecurity platform CrowdStrike Holdings, Inc. contributed to performance with the stock increasing 38.1%. The rapid progress in AI cyber capabilities, underscored by several high-profile incidents in which AI agents escaped their testing environments and breached live corporate systems, has made cyber defense a board-level priority and is driving committed cybersecurity spending. CrowdStrike sits at the center of this demand, securing the endpoints, clouds, and identities where AI is increasingly created and consumed. With modules across every major security category and a trusted brand, the company is also benefiting from a structural consolidation of spending away from point products and legacy antivirus vendors. We believe this contributed to the strongest quarter in CrowdStrike’s history as a public company. Annual recurring revenue (ARR), net new ARR, and revenue growth all accelerated, with net new ARR increasing 51% year-over-year and management raising its full-year net new ARR growth outlook by 630bps. We retain conviction in CrowdStrike’s long-term opportunity while remaining mindful of valuation following the stock’s substantial appreciation.

Space Exploration Technologies Corp. (SpaceX) develops and launches advanced rockets, satellites, and spacecraft, with the long-term goal of making humanity multi-planetary. The stock detracted from performance as shares pulled back 11.7%, despite strong underlying fundamentals. We remain long-term shareholders and believe the company is in the early stages of a multi-decade growth opportunity. SpaceX’s first public-company results reinforced our conviction, with revenue nearly doubling year-over-year and losses narrowing sharply on high incremental margins. Growth was driven by rapidly scaling, multibillion-dollar compute-hosting deals with AI leaders, including Anthropic and Google, alongside Starlink momentum. Management guided to a robust $100 billion annualized revenue run rate by year-end 2026 and forecasted up to five times more computing capacity exiting 2027, well above Street expectations. SpaceX also closed its acquisition of Cursor, a premier enterprise AI-powered coding platform, accelerated product development with Grok Bot and more advanced Grok models, and progressed Starship toward full reusability.

Forgent Power Solutions, Inc. is a leading manufacturer of electrical distribution equipment used in data centers, the power grid, and industrial applications. The company specializes in low- and medium-voltage electrical equipment, with more than 90% of revenue derived from custom, engineered-to-order products, while larger competitors tend to focus on higher-voltage and more standardized offerings. Shares fell 33.0% as sentiment weakened across the AI infrastructure market, despite financial results and guidance that beat expectations. Bookings reached $1.5 billion during the quarter, significantly exceeding the company’s current quarterly revenue run rate of roughly $0.5 billion, driving an exceptional 3.25 times book to bill ratio. Forgent is gaining market share through its ability to offer customized products with industry-leading lead times and remains in the early stages of its opportunity, having recently signed its first master services agreement with a hyperscale customer. The company has invested heavily in capacity and personnel to support future growth. Given the strength of demand, Forgent has increased its planned manufacturing footprint to $5.8 billion, supporting our view that the company has many years of growth and margin expansion ahead.

Loar Holdings Inc. is a specialized aerospace components manufacturer focused on highly engineered, mission-critical products. Shares declined 23.7% amid growing negative sentiment toward the aerospace aftermarket as elevated fuel prices related to the Iran War weighed on investor outlook, despite continued strong fundamental results, with revenue growth of 39% year-on-year (12% organic) and adjusted EBITDA margins reaching 40.5% (up 220bps year-on-year). The company has also raised its annual guidance on all key metrics – revenues, adjusted EBITDA, and adjusted EPS. We remain shareholders and expect solid fundamental performance going forward, supported by latent pricing power and a strong new product pipeline. The company has not fully utilized its pricing power in stronger market conditions, providing flexibility in a more challenging environment, if it were to materialize. We also expect new product growth to accelerate as customers increasingly seek out leading suppliers to solve complex problems.

The portfolio is constructed on a bottom-up basis with the quality of ideas and conviction level having the most significant roles in determining the size of each individual investment. Sector and country weights are an outcome of the stock selection process and are not meant to indicate a positive or a negative “view.”

As of September 30, 2026, the top 10 positions represented 58.0% of the Fund’s net assets, and the top 20 represented 81.8%. We ended the third quarter with 39 investments, although the top 30 represented 94.6% of the Fund.

Our investments in the IT, Communication Services and Consumer Discretionary represented 80.6% of the Fund’s net assets, while Health Care, Financials, and Industrials sectors, as classified by GICS, represented another 17.1%. Cash accounted for the remaining 2.2%.

Our investments in non-U.S. companies represented 38.8% of the Fund, of which our investments in emerging markets and other non-developed countries (Argentina) totaled 22.8% of net assets.

* Individual weights may not sum to the displayed total due to rounding.

During the quarter, we initiated a new position in the optical networking solutions provider, Coherent.

We also took advantage of stock price volatility to add to several existing positions including: the Latin-American neobank, Nu, the fast-inference AI infrastructure provider, Cerebras, the Chinese data center infrastructure provider GDS, the neocloud, Nebius, the AI-based heart-disease diagnostics solutions provider, Heartflow and the leading semiconductor manufacturer, TSMC.

We have exited six stub positions during the quarter – Alphabet, Adyen, InPost, Afya, INNIO, and Taboola.com. These six holdings represented an average combined weight of 1.3% of the Fund over the quarter.

We also reduced five existing positions: SpaceX, which continues to be our highest conviction investment and the largest holding in the portfolio, and the four software companies— Cloudflare, CrowdStrike, Datadog, and Netskope – whose valuations had become more demanding following a period of strong share price appreciation.

We initiated a new position in Coherent Corp., a leading designer, developer, and manufacturer of optical networking solutions to the data center and industrial markets. Coherent sells lasers, transceivers, and other optical devices used to convert electrical signals to light (and vice versa) and transmit data across a network.

As AI models become larger, more intelligent, are trained on more data and work with longer context windows (process more information at any given time - especially with reasoning models and agentic AI), they are no longer able to be trained on or inferred on a single GPU, requiring multiple GPUs to be connected together, which increases the need for fast connectivity. These dynamics together with the slowdown in Moore’s law (which means that single-chip performance gains have slowed down) make AI not only a chip optimization problem but a whole data center optimization problem as models run across multiple GPUs simultaneously with some workloads running on whole data centers of tens and hundreds of thousands of GPUs working in tandem.

Decades of progress in transistor scaling, data types, and architecture have pushed compute performance up by orders of magnitude, yet the performance of moving data, measured in bandwidth and latency, has not kept up. Since AI has become a data center-scale problem, the ability to move data quickly, securely, with high bandwidth and low latency, has become a key focus area in building AI infrastructure.

The innovation in the networking stack is now happening across every tier of the communication hierarchy – between dies within a chip package, between processor and HBM (High Bandwidth Memory), between processor packages (CPU and GPU), between servers, between servers and more distant memory subsystems, and even between data centers. But however clever the innovation at each layer is, the physical medium carrying the data eventually becomes the binding constraint. This is why photonics have become increasingly critical to the AI infrastructure buildout – as it enables moving data at the speed of light and with less signal loss over high frequencies.

As AI frontier models become larger, and require more GPUs to train on, the number of connections grows at a multiple of the growth in the number of GPUs, as every GPU has to talk to every other GPU with larger clusters demanding ever more pluggable optics in a ‘Scale Out’ network to connect GPU servers across a data center. Next came ‘Scale-Across’, connecting multiple data centers through optical fiber. As we look out over the coming years, we expect additional growth drivers to materialize: ‘Scale Up’ (connecting GPUs and processors inside the AI server rack) is expected to increasingly shift to optical connectivity over time as speeds increase; and Optical Circuit Switches (OCS) which handle a range of networking functions within the data center while keeping the signals within the optical domain without moving back and forth into electrical. Further out, scale in, connecting dies or memory optically within a single package, becomes essential to the next generation of systems.

Historically, Coherent’s growth has been driven by pluggable devices (transceivers), a less differentiated business, where growth was driven mostly due to a growing overall demand in the industry. The next phases of growth—scale-across, scale-up, OCS, and scale-in—require a range of highly specialized photonics components that are difficult to manufacture, with only two companies globally possessing the requisite expertise, Coherent among them. As these growth drivers materialize and become a larger part of the mix, we expect the company’s competitive advantages to become more apparent, which will also help drive margins higher. Coherent also carries the broadest technology portfolio in the industry, allowing it to serve customers with different architectural designs and across the infrastructure stack.

Beyond its leading technology, we believe Coherent’s vertical integration creates a competitive advantage, engineering the materials, fabricating the components, and assembling the finished devices and systems. It is both the leader in gallium arsenide Vertical-Cavity Surface-Emitting Laser transceivers, the data center standard, and the leader and largest producer of indium phosphide Electron-Absorption Modulated Laser and Continuous Wave transceivers, which are critical for high-speed transmission. It has also been qualified into co-packaged optics, and OCS solutions. Its manufacturing is also well diversified geographically with facilities in Germany, Malaysia, Vietnam, the Philippines, the U.K., Switzerland, the U.S., and China, an advantage in today's geopolitical environment, and lastly, it has built a new 6-inch wafer manufacturing facility, which would enable it to produce more lasers, at lower unit cost.

With a large and rapidly growing addressable market opportunity and competitive advantages that are becoming stronger over time, we believe Coherent is well positioned for sustained growth over a long period of time.

“The lesson. Stock prices don't always tell you how businesses are doing. They just tell you what you can buy and sell stock for at a given day and a given moment. Not always accurate. In fact, frequently inaccurate. Our business based upon figuring out what a business will be worth in five or 10 years. And buying at a big discount from that level. That's how come we've been so incredibly successful.”
– Ron Baron in an email to the Firm’s research staff on October 8, 2026.

As we are writing this letter, the market is selling off, with the “AI trade” or the perceived beneficiaries of AI getting hit particularly hard. Investors are concerned with the spiking debt yields of neoclouds and recent disclosures by Anthropic that the torrid pace of its growth in revenues and ARR has slowed down. The geopolitical uncertainty remains elevated with the price of oil exceeding $100 once again and the 10-year treasury yield hovering around 5.3%. There is a broad consensus that the Fed will continue to raise interest rates, which is a clear headwind to equities and in particular to growth equities, for obvious reasons.

Having said and acknowledged all that… we continue to be incredibly optimistic about the long-term prospects for AI and for the Space Economy. Some years ago, we took a deep dive into NVIDIA and wrote to you how “we have never seen a company like it!” In the last quarterly letter, we took a deep dive into SpaceX (we have owned it for years) and described it as “THE company with N=1!” because in our 30-plus years of professional capital allocation experience we have never seen a company like it. After spending six hours listening to the management of Anthropic at their October investor day and getting a first look at their financials – we can unequivocally state – we have never seen a company like it.

We do not know how or when the wars with Iran and Russia-Ukraine will end, but we believe that they will and that the price of oil will normalize and stabilize at significantly lower levels. We do not know what the Fed is going to do but we do know that technological advancements are deflationary in nature and we believe that progress in AI is real, material, and sustainable, and that it will lead to meaningful improvements in productivity and likely accelerate global GDP growth. More importantly, we believe that the quality of our portfolio companies today is the highest it’s ever been. While corrections, pullbacks, and even bear markets are par for the course, we do NOT see an AI bubble. “Air pockets,” supply constraints, rising interest rates can all cause stock prices to compress, but in our view, comparisons to the internet bubble of 1999 do not hold water, and even unlike 2021, we do not view our stocks as expensive compared to the strength in their fundamentals.

As we do every quarter, we analyzed the change in the weighted average multiple of the Fund⁶ and the weighted average change in consensus expectations for 2026 (for revenues and operating income). The weighted average multiple for the Fund declined by 9.2% in the third quarter (8.2% of that due to SpaceX) and is down 4.1% year-to-date – this despite the Fund appreciating 24.6% year-to-date, which implies that over 100% of the Fund’s performance was due to growth in fundamentals, while on average, our stocks have become more attractive to own. As to fundamentals⁷, weighted average revenue expectations increased by 6.3% during the third quarter (and are up 11.1% year-to-date) and operating income expectations increased by 3.4% (and are up 11.7% year-to-date). We also analyzed the current valuation multiples for our companies and compared them to the average valuation multiples over the last five years⁸. The weighted average multiple for the portfolio at the end of the quarter was 19.3% below its average over the last five years.

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 present.

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 the companies are trading at attractive prices relative to their intrinsic values.

Sincerely,