Baron Opportunity Fund | Q1 2025

Dear Baron Opportunity Fund Shareholder:

During the first quarter, Baron Opportunity Fund^® (the Fund) fell 11.97% (Institutional Shares), underperforming the Russell 3000 Growth Index (the Benchmark), which dropped 10.00%, and the S&P 500 Index, which declined 4.27%.

The market, in the short term, is a confidence game. January brought strong performance for the Fund, fueled by investor optimism around robust secular growth driven by technological innovation, particularly AI. This was amplified by expectations that the new Trump administration’s policies – lower business taxes, streamlined regulations, reduced energy costs, and budget cuts – would spur economic growth. However, sentiment shifted abruptly in mid-February. Fears of tariffs, a potential global trade war, and geopolitical realignment reversed market gains, creating volatility reminiscent of the 2020 COVID crisis or the 2008-09 Great Financial Crisis.

To put it plainly, tariffs – a whirlwind of rumors, X posts, debates, and contradictory official statements – have dominated the narrative, as one observer quipped, “sucking the air out of the room.” This uncertainty has sparked fear and uncertainty akin to historic market upheavals. The past 60 days saw dramatic developments: the April 2 rollout of historically high “reciprocal” tariffs stunned markets, followed by a 90-day pause announced at midnight on April 10. Near-daily rumors of trade deals, tariff exclusions, and subsequent denials have kept volatility elevated. As events unfold, uncertainty remains the prevailing mood, challenging even the most resilient investors.

We don’t believe Baron Funds shareholders are reading our quarterly letters for our analysis of tariffs or short-term calls on macro issues or market projections. But we do wish to address our high-level thinking and how we are researching, analyzing, and investing on your behalf in this environment.

Macro and Market

I’ve worked at Baron for close to a quarter of a century. I’ve gained experience from researching and investing through several different macro disruption and market-driven shocks, including the bursting of the Dot-Com bubble, the Great Financial Crisis, the COVID pandemic, and the 2022 tech “recession” and spike in interest rates. History rhymes but does not repeat. The current financial crisis is distinct from past ones. So, we are drawing on lessons of the past while adapting our approach to the unique dynamics of today.

By its executive orders and actions, the Trump administration may be attempting to usher in structural or systematic change–a new world order in terms of global trade relations and international diplomacy and alliances. I say “may be” because conditions have been changing on a dime, and no one knows the precise goals of the administration or can align conflicting policy objectives and statements by members of the administration, including the President himself. We have remained closely attuned to the current and potential measures taken by the administration and the debates and analyses of well-informed and experienced experts on all the issues at play. We have read countless reports, articles, papers, and notes, and listened to hours of interviews, podcasts, and debates. We have discussed and examined the current state of play, realistic scenarios, and potential consequences. But as Ron has steadfastly articulated for over 50 years,⁵ we do not attempt to forecast or predict macroeconomic, political, or geopolitical outcomes, and this one might be more impossible to call than all the others we have lived through or learned about.

I believe it would be misleading to downplay concerns about the current landscape or to speculate on short-term market trends. The only forecaster with a good track record of identifying market tops or bottoms–or predicting the outcome of an economic shock like the current trade war– goes by the name “20/20 hindsight.” But relative to current stock valuations, we believe our portfolio of secularly driven, competitively advantaged, cash-flow-generating businesses offers solid multi-year returns once the current volatility subsides and a broad range of new-normal scenarios emerge. I do hope the quote attributed to Winston Churchill proves prescient, even for the current cast of characters: “You can always count on Americans to do the right thing, after they’ve tried everything else.”

Investment Strategy and Tactics

In today’s volatile, headline-driven environment, we remain resolute in managing the Fund by focusing on what we can control: our long-term investment mandate, rigorous research, disciplined analysis, sound judgment, and strategic portfolio decisions. The Fund distinguishes itself through an unwavering focus on “where the world is headed, not where it’s been” – capitalizing on powerful secular growth trends that disrupt industries and drive sustained, high-impact opportunities. While past macroeconomic shocks temporarily disrupted trends like the internet, mobile, cloud computing, and digital transformation, history shows these forces prevailed. We are confident the same resilience will hold today, despite potential obstacles. Transformative secular trends – such as AI; autonomous transportation; robotics; digital commerce, media, finance; advanced therapeutics, and minimally invasive surgery – will shape the future. As highlighted at last November’s Baron Investment Conference and in recent letters, the most successful investments of the past half century thrived by harnessing technological breakthroughs and relentless secular trends that reshaped industries and transformed how we live and work.

We acknowledge that proposed tariffs and trade restrictions may pose short-term challenges for many of our portfolio companies. For instance, just last week, as we drafted this letter, the administration barred NVIDIA Corporation from selling its H20 chip – a lower-power, export-compliant version of its previous-generation technology – to China.⁶ Tactically, we are rigorously assessing the resilience of our investments against tariffs, trade barriers, and the growth headwinds stemming from this uncertainty. We prioritize companies that combine macroeconomic resilience with enduring long-term growth and competitive advantages, particularly those poised to accelerate once the current uncertainty resolves, and new trade and geopolitical frameworks emerge.

We are actively engaging with our portfolio companies, asking our core long-term questions – spanning growth opportunities, competitive differentiation, product-market fit, go-to-market strategies, profitability, and capital allocation – while also probing potential tariff impacts, macroeconomic risks, and management contingency plans. Most management teams and companies reporting earnings acknowledge the prevailing uncertainty but note that current business trends remain stable, with tariff impacts deemed “too soon to assess.”

We are actively refining our financial modeling and price target analysis, rigorously evaluating revenue projections, their translation to profits and cash flow, and testing conservative and downside scenarios as appropriate. We employ a “double math” approach for most portfolio companies, assessing the revenue growth, margins, and valuation multiples required for stocks to double in value over four to five years. In setting price targets, we are using more conservative financial projections and lower-end valuation multiples, while also calculating downside risks. This disciplined process aims to identify stocks with compelling risk/reward and upside/downside profiles.

Ultimately, we remain committed to investing in long-term secular winners with resilient products, revenue models, and management strategies, ensuring durability and growth through evolving market conditions.

AI

Given the importance of AI as (1) “the most powerful technology platform shift and secular growth driver since the advent of the internet itself,”⁷ and (2) the predominant driver of stock leadership over the last two years, we would like to share a few high-level thoughts.

• The Trump administration’s words and actions – including initiatives like Project Stargate and Taiwan Semiconductor Manufacturing Company Limited’s (TSMC) $100 million investment in U.S. advanced semiconductor manufacturing, alongside restrictions such as the H20 China ban – underscore a commitment to prioritizing AI for national and economic security and a broader goal of maintaining U.S. AI leadership. Heightened uncertainty persists, however, due to potential new tariffs and trade restrictions, particularly in relation to U.S.-China dynamics, which could either isolate and restrain China’s AI development or lead to a comprehensive bilateral agreement. This uncertainty has negatively influenced the valuations of AI industry leaders like NVIDIA, Broadcom Inc., and TSMC. While near-term challenges may impact growth and earnings, we believe the long-term trajectory of AI as a transformative force remains enduring and will ultimately be supported by policies aimed at sustaining U.S. dominance in the sector.
• The quarter began with intense market speculation about DeepSeek and its potential to reshape AI development. To address this, we hosted a Thought Leadership Forum webinar, “DeepSeek Disillusion: Evaluating the Future of AI,” on February 3, 2025, and published a related Baron Insights article in April. Our perspective, as outlined in these works, remains unchanged. Key points include: (1) the market’s response to DeepSeek was significantly overstated; (2) the arms race toward artificial general intelligence and artificial super intelligence continues unabated, with well-funded Western leaders like OpenAI, X.AI Holdings Corp. (xAI)⁸, Anthropic, Alphabet (Google), Meta Platforms, Inc., Microsoft Corporation, and Amazon.com, Inc. leading the field, as none can afford to sit on the sidelines of this critical contest; (3) AI scaling laws remain robust, further strengthened by advancements in reasoning and long-thinking models; and (4) beyond consumer applications, like ChatGPT or Grok, innovations in agentic AI and physical AI are driving increased investment in the sector.
• Amid tariff uncertainty, some investors worry about a pause or digestion period in AI capital investment. However, public statements from management teams and our private discussions confirm robust AI capital investment plans for 2025, with strong demand projected through 2026. For instance, TSMC, a global leader in advanced AI semiconductor manufacturing, stated on its recent earnings call: “robust AI-related demand from our customers throughout 2025,” “revenue from AI accelerators [will] double in 2025,” “[r]ecent developments are also positive to AI’s long-term demand outlook,” and its capacity builds are “[s]till fully…for 2026,” though its CEO noted he “cannot say the number.” Moreover, xAI has been open regarding its plans to build the world’s largest coherent AI training cluster at over 1 million H100 GPU equivalents, five times the size of its Colossus data center; and Sam Altman posted on X in February that OpenAI has “been growing a lot and are out of GPUs” and that “hundreds of thousands coming soon, and I’m pretty sure y’all will use every one we can rack up.”
• Concerns about AI’s return on investment persist among some investors, but industry leaders remain unfazed. NVIDIA CEO Jensen Huang declared on his latest earnings call: “No technology has ever had the opportunity to address a larger part of the world’s GDP than AI.” We believe this vision will prove true. Of the $110 trillion global GDP, tech spending accounts for just 5% – about $5.5 trillion – while human labor still represents about 45% to 50%. AI is the cornerstone of productivity-driven digital transformation. With advancements in agentic and physical AI gaining momentum, Microsoft CEO Satya Nadella’s repeated prediction that tech spending should double over the foreseeable future appears to be a relatively easy target, with 15% to 20% of GDP not out of reach down the line. Five percent of global GDP is $5.5 trillion and 10% is $11 trillion – prize money no business race has ever rivaled.

Below is a partial list of the secular megatrends we focus on:

• Cloud computing
• Software-as-a-service
• AI
• Mobile
• Semiconductors
• Digital media/entertainment
• Targeted digital advertising
• E-commerce
• Genetic medicine/genomics
• Minimally invasive surgical procedures
• Cybersecurity
• Electric vehicles (EVs)/autonomous driving
• Electronic payments
• Robotics

We continue to run a high-conviction portfolio with an emphasis on the secular trends cited and listed. Among others, during the first quarter we initiated or added to the following positions:

• Software: Snowflake Inc., The Trade Desk, and Atlassian Corporation Plc
• Semiconductors & semiconductor equipment: Monolithic Power Systems, Inc. and Nova Ltd.
• Data center infrastructure: Vertiv Holdings Co
• Space/satellite broadband: Space Exploration Technologies Corp.
• Cybersecurity: Zscaler, Inc. and CyberArk Software Ltd.
• Capital Markets: LPL Financial Holdings Inc.

Founded by Elon Musk in March 2023 with the ambitious mission “to understand the true nature of the universe,” X.AI Holdings Corp. (xAI), has quickly emerged as a prominent force in the AI industry. In a remarkably short time span, xAI released to the market its AI model, Grok, and recently followed up with the high-profile release of Grok 3, marking a major advancement in its technology. Fueling Grok 3’s breakthrough performance was the rapid deployment of xAI’s Colossus data center. Redefining what’s possible, Colossus became operational in just 122 days, running a highly utilized fleet of 100,000 GPUs. It currently holds the title of one of – if not the – largest coherent AI training infrastructure. The next major milestone, scaling to 200,000 GPUs, was achieved in a mere 92 days. Grok 3 was the first model to be trained on xAI’s own infrastructure, utilizing over 10 times the computational power used for Grok 2. These early milestones demonstrate xAI’s capacity to accelerate innovation and its potential to secure a sustained leadership role in the highly competitive AI industry.

Further to these remarkable achievements, xAI recently announced that it has acquired X, formerly Twitter. The acquisition is expected to result in meaningful efficiencies and growth opportunities, driven by better alignment of corporate incentives, enhanced resource allocation, and the integration of data, compute, and products. While some competitors struggle to secure high-quality data, the acquisition is expected to enhance xAI’s access to X’s vast, real-time, multimodal data, generated by 600 million active users worldwide. We anticipate that xAI’s AI products will be more seamlessly integrated into the X platform, enhancing the user experience and creating improved distribution opportunities for the company’s offerings.

We value the stock based on transaction in shares, including the recently announced merger, resulting in stock appreciation and quarterly outperformance.

Spotify Technology S.A. is the leading global digital music platform, offering on-demand audio streaming through both paid premium subscriptions and an ad-supported tier. Shares of Spotify rose following another strong quarterly result, marked by a significant gross margin beat and healthy expansion in operating margins. The company’s compelling value proposition has allowed it to begin flexing pricing power, introducing additional price increases across various global markets. Notably, user growth remains robust despite these hikes, underscoring the strength of the platform. We believe Spotify will continue to leverage its pricing power as it enhances its offering with new features such as audiobooks, AI-driven personalization, a forthcoming “Super Premium” tier, and potentially an education-focused product. In addition to a solid top line and improving margins, the company generated a record $2.3 billion in free cash flow in 2024, reflecting growing scale and discipline in execution. Looking ahead, we see a clear path toward 35% gross margins, driven by continued growth in high-margin areas such as marketplace, advertising, podcasts, and audiobooks. Operating efficiency remains a strategic focus. Compared to many other consumer discretionary and tech names, Spotify has traded more defensively, aided by the platform’s strong consumer retention and resilient financial characteristics. We expect the company to sustain positive earnings growth, supported by both company-specific drivers and broader industry tailwinds. The launch of the Super Premium tier – expected this year in North America and globally – should be materially accretive to profitability and free cash flow over time. We continue to view Spotify as a long-term winner in music and audio streaming, with the potential to scale to over 1 billion monthly active users.

Inari Medical, Inc. supplies catheter-based devices to remove clots from venous thromboembolism (VTE). VTE is the third most common vascular condition in the U.S. after heart attacks and strokes and can be fatal if left untreated. The market is still mostly greenfield, with patients receiving only ineffective drugs, and we believe there is room for multiple devices to win. Shares contributed to performance after Inari was acquired by Stryker in early January.

NVIDIA Corporation is a semiconductor and systems company specializing in compute and networking systems for accelerated computing. Its unmatched leadership in AI infrastructure, spanning GPUs, systems, software and networking solutions, continues to drive robust performance. However, NVIDIA’s stock came under pressure during the quarter, as media and investor narratives shifted toward skepticism, ranging from concerns over slower AI adoption to DeepSeek-related fears that future AI training and inference workloads may become more compute-efficient, reducing demand of accelerated computing systems. As discussed above, we believe these concerns are premature. Training cluster buildouts are progressing in line with expectations, while inference will progressively and steadily scale with usage as enterprises integrate AI into real-world workflows and consumers continue to adopt AI applications, such as ChatGPT, Grok, and Perplexity, to name just a few. Moreover, as we shift from standard gen 1 (gut based) AI models to reasoning gen 2 (long thinking) models, the query response can demand about 100 times more inference compute to provide a better answer. In contrast to these skeptical narratives, NVIDIA delivered a strong January 2025 quarter, which exceeded Street expectations, driven by data center compute revenues growing 116% to $32.6 billion, with $11 billion of revenue from NVIDIA’s new Blackwell architecture, the fastest product ramp in the company’s history. On the February earnings call and at the GTC conference in March, CEO Jensen Huang reiterated a number of NVIDA growth drivers, including: (1) accelerated (GPU-based) computing architectures replacing legacy (CPU-based) computing architectures; (2) multiple Gen AI scaling laws, including pre-training (more data, more compute, smarter models), post-training using reinforcement learning from human and AI feedback, and inference with test-time, long-reasoning compute; (3) agentic AI (autonomous, non-human workers); and (4) physical AI (robots, EV’s, etc.).

Tesla, Inc. designs, manufactures, and sells fully EVs, related software and components, and solar and energy storage products. Shares fell due to declining analyst expectations for auto delivery volumes and gross margins in 2025 due to: (1) a refresh of the Model Y, Tesla’s highest-volume vehicle and the world’s best-selling car in 2024; (2) Elon Musk’s controversial role in the Trump administration as putative leader of DOGE; and (3) regulatory changes that could pose potential operational challenges. Despite these headwinds, we remain confident in Tesla’s long-term growth, underpinned by secular trends in EVs and energy storage adoption, a compelling and expanding product line, its leading cost structure, and cutting-edge, real-world AI technologies, particularly autonomous driving and humanoid robots. We believe the Model Y refresh alongside the debut of new mass-market models should boost vehicle demand as we move through the year. Over time, we expect the political pressure to fade, while Tesla’s AI ambitions – a robotaxi service launching this year and the Optimus humanoid program – hold the promise of transforming its growth story. Here’s are some direct quotes from Elon on Tesla’s late-January earnings call:

• Full Self Driving: “[V]ery few people understand the value of full self-driving and our ability to monetize the fleet…[T]hat’s why my number one recommendation for anyone who doubts is simply try it…[T]he only people who are skeptical…are those who have not tried it. So a … passenger car typically has only about 10 hours of utility per week out of 168, a very small percentage. Once that car is autonomous, my rough estimate is that it is in use for at least a third of the hours per week, so call it, 50, maybe 55 hours of the week. And it can be useful both cargo delivery and people delivery. So even let’s say people are asleep, but you can deliver packages in the middle of the night, or resupply restaurants, or whatever the case may be, whatever people need at all hours of the day or night. That same asset … that already exist[a] with no incremental cost change, just a software update, now ha[s] 5x or more the utility than they currently have. I think this will be the largest asset value increase in human history.”
• Optimus: “With regard to Optimus, obviously, I’m making these revenue predictions that sound absolutely insane. I realize that. But I think they will prove to be accurate. Now, with Optimus, there’s a lot of uncertainty on the exact timing because it’s not like a train arriving at the station for Optimus. We are designing the train and the station and in real time while also building the tracks…The normal internal plan calls for roughly 10,000 Optimus robots to be built this year. Will we succeed in building 10,000 exactly by the end of December this year? Probably not. But will we succeed in making several thousand?... Will those several thousand Optimus robots be doing useful things by the end of the year? Yes, I’m confident they will do useful things. Those Optimus in use at the Tesla factories for production design one will inform how would we change for production design two, which we expect to launch next year. And our goal is to ramp up Optimus production faster than maybe anything has ever been ramped… We tried desperately with Optimus to use any existing motors, any actuators, sensors, nothing worked for a humanoid robot at any price. We had to design everything from physics first principles to work for a humanoid robot. And with the most sophisticated hand that has ever been made before, by far. Optimus will be able to, like, play the piano and be able to thread a needle. I mean, this is the level of precision no one has been able to achieve. And so, it’s really something special…So… my prediction long-term is that Optimus will be overwhelmingly the value of the company… I’m confident at 1 million units a year that the production cost of Optimus will be less than $20,000. If you compare the complexity of Optimus to the complexity of a car, so just the total mass and complexity of Optimus is much less than a car. So I would expect that at similar volumes to, say, the Model Y, which is over 1 million units a year, that you’d see Optimus be…half the cost or something like that. What the price of Optimus is, is a different matter. The price of Optimus will be set by the market demand.”

Broadcom Inc. is a leading fabless semiconductor and enterprise software company, with approximately 60% of revenue generated from semiconductors and 40% from software. The company’s focus on high-performance AI compute and networking solutions, coupled with its disciplined execution in software, positions it as a strategic leader in critical technology markets.

Broadcom delivered a strong quarter, beating expectations on both semiconductors and software. AI remained the key growth engine – reaching a $4.1 billion quarterly run rate, up 77% year-over-year – driving a solid ramp in semiconductor revenue, even as non-AI segments like wireless and industrial declined. Software surged, fueled by VMware integration and a shift to subscriptions. Management guided to continued AI momentum and steady software execution, with a more pronounced AI ramp expected in the second half. Despite strong quarterly results, the stock retreated amid the same AI-related skepticism as NVIDIA, but primarily due to the broad market pullback on tariff and trade-relations concerns. We remain confident Broadcom is on track to win with its three custom AI accelerator customers and will capture the majority share in the custom-compute space. Broadcom’s lead customer, Google, just rolled out its 7^th generation TPU, nicknamed Ironwood, and as Broadcom’s two unnamed (but well speculated) non-Google customers gain traction, confidence in the broader pipeline of four additional partners should strengthen, supporting continued growth in Broadcom’s AI business. We spent two hours with Broadcom’s CEO Hock Tan in March, and he told us in no uncertain terms that “all of them will aggressively ramp and push custom accelerators.”

We invest in secular growth and innovative businesses across all market capitalizations, with the bulk of the portfolio landing in the large-cap zone. Morningstar categorizes the Fund as U.S. Large Growth. As of the end of the first quarter, the largest market cap holding in the Fund was $3.3 trillion and the smallest was $424 million. The median market cap of the Fund was $33.7 billion, and the weighted average market cap was $1.0 trillion.

To end the quarter, the Fund had $1.4 billion of assets under management. We had investments in 44 unique companies. The Fund’s top 10 positions accounted for 55.6% of net assets.

Despite the market backdrop, the Fund had positive inflows for the quarter.

Snowflake Inc. is a leading cloud data platform that today is predominantly utilized by customers for data analytics. We re-established an investment in Snowflake during the quarter as the stock pulled back from mid-February highs on the broader market retreat and questions regarding the company’s CEO transition and AI competitiveness. Our confidence in Snowflake’s ability to capitalize on its substantial market opportunity has strengthened over the past year. We have been engaging with the company’s management for years, even prior to its public listing. During this quarter, we had the opportunity to meet again with Sridhar Ramaswamy, who assumed the CEO role last year. Despite his relatively short tenure, his influence on the company is evident. Snowflake’s pace of product innovation has significantly accelerated, enabling Snowflake to better address AI use cases. For instance, the platform now enables enterprises to harness a growing list of leading AI models, including those from OpenAI and Anthropic. Moreover, by integrating open table formats like Iceberg, customers can leverage Snowflake’s highly efficient query engine across data assets that are 100 to 1,000 times larger than the datasets currently stored on the platform. Meanwhile, customers continue to benefit from the platform’s core strengths, such as ease of use, strong governance, and data sharing.

Beyond product innovation, our confidence in the company’s go-to-market strategy has also strengthened. Management has made significant strides in aligning product and sales efforts, including adding technical-overlay teams to enhance product expertise within the company’s sales motion. Compensation schemes have been adjusted, and sales enablement efforts are in place to drive improvements both in acquiring new customers and expanding within existing accounts. Sales teams are now incentivized to drive use-case expansion and increased consumption among customers, which aligns more closely with Snowflake’s consumption-based revenue and pricing models, fueling continued business growth.

We believe Snowflake presents an attractive growth and investment opportunity, operating in a large and expanding data intelligence market that is poised to become a critical layer within an AI-centric ecosystem.

The Trade Desk is the leading demand-side platform (DSP) in internet advertising, enabling agencies and brands to efficiently plan, buy, and measure digital advertising across desktop, mobile, online video, and connected TV (CTV). Shares declined meaningfully during the quarter following the company’s first earnings miss in 33 quarters as a public company, along with forward guidance that came in slightly below investor expectations. The company cited several factors contributing to the softer outlook, including delays in the rollout of its next-generation Kokai platform, which advertisers use to manage their campaigns, as well as a strategic realignment of the sales organization to improve focus on the world’s largest advertisers.

Investor concerns were compounded by fears that Amazon may become a more aggressive competitor and by broader macroeconomic uncertainty leading to lower advertising spend. In response to these developments and the meaningful stock price move, we conducted a deep re-examination of Trade Desk’s business and our investment case, dedicating significant resources to reevaluate the company’s long-term growth potential, profitability trajectory, competitive positioning, business model, and valuation. Our work included conversations with customers, competitors, venture capital investors, and other industry participants. Based on this research, we reached several conclusions:

1. Kokai Rollout Progress: The Kokai platform is now on track to achieve 90% adoption by year-end, in line with company targets. Advertiser feedback has been notably positive, with many citing high incremental returns on ad spend, which we expect will lead to increased client budgets over time. Deployment bottlenecks are resolving more quickly, and customers are moving onto the platform at an accelerating pace.
2. Enterprise Sales Focus Gaining Traction: The strategic pivot to focus on large global advertisers is already producing early results. This customer segment offers greater long-term revenue potential and a stronger pipeline of campaigns for the second half of the year.
3. Competitive Landscape Remains Favorable: While Amazon’s push into the DSP space has raised concerns, we view the threat in a similar light to prior moves by Google, which offered free or discounted tools to entice advertisers. In both cases, the market has shown a strong preference for independent and objective platforms that are not vertically integrated with media owners. We believe large advertisers will continue to value Trade Desk’s independence, transparency, and neutrality – critical differentiators in a fragmented and complex ecosystem.
4. Short-term Macro versus Long-term Opportunity: The most tangible and immediate headwind is the macroeconomic environment, particularly the potential for softer ad budgets in the near term. This may cause shares to remain under pressure in the short run. However, we believe the long-term opportunity remains compelling, and valuation is now attractive relative to the company’s intrinsic value and market position. As such, we added to our position during the quarter and may look to add further should the stock retrace again.

Despite near-term uncertainty, we remain confident in Trade Desk’s structural advantages. The company is uniquely positioned to benefit from secular tailwinds in CTV advertising, driven by the ongoing shift from linear TV to streaming. As more households cut the cord and as platforms like Netflix, Spotify, and Pinterest open their inventory to programmatic buying, Trade Desk stands to gain incremental demand through these partnerships. Over the long term, we continue to view Trade Desk as one of the most differentiated platforms in digital advertising, supported by its proprietary technology, scaled infrastructure, and a roughly 10% share of the $100 billion and growing programmatic market – a segment that remains a small but expanding portion of the $700 billion global advertising landscape.

Monolithic Power Systems, Inc. (MPS) is a fabless high-performance analog and power semiconductor company serving diverse end markets across the semiconductor industry. Despite consistently growing 10% to 15% above the industry for many years, MPS is still a relatively small player in the broader analog and power management industries. It leverages its deep system-level and applications knowledge, strong design experience, and innovative process technologies to provide highly integrated, energy efficient, cost effective, and easy-to-use monolithic products to its customers. We have owned the company in the past and took advantage of recent volatility in the stock tied to confusion around its positioning as a supplier to AI servers to repurchase a position at attractive prices.

The company continues to expand its addressable market and drive strong revenue growth by taking advantage of areas where competition fails to innovate and driving even deeper integration of its products, including a bigger emphasis today on modules that provide better performance for customers and result in MPS achieving higher dollar-content per end device. Management consistently targets and achieves their growth goals, having quickly surpassed the prior $1 billion revenue target and more recently a $2 billion revenue run-rate, with eyes on a $4 billion business in the coming years and even larger beyond. As customers continue to turn to MPS for its culture of innovation and performance advantage relative to competitors, we believe the company will achieve its growth ambitions and become an increasingly important player in the power and analog semiconductor industry.

In the software space, we trimmed our Microsoft Corporation position and exited our Dayforce, Inc. and Cadence Design Systems, Inc. holdings to spread investments around our favorite growth software names, including Snowflake Inc., The Trade Desk, Atlassian Corporation Plc, Zscaler, Inc., CyberArk Software Ltd., Samsara Inc., Datadog, Inc., PAR Technology Corporation, and GitLab Inc., when their stocks retreated during the quarter.

We sold Inari Medical, Inc. after it was acquired by Stryker, as discussed above.

In the semiconductor equipment space, we sold ASML Holding N.V. and redeployed some of that capital into initiating an investment in Nova Ltd., a company Baron Discovery Fund has been an investor in for many years and which has long been on our watch list.

I remain confident in and committed to the strategy of the Fund: durable growth based on powerful, long-term, innovation-driven secular growth trends. We continue to believe that non-cyclical, durable, and resilient growth should be part of investors’ portfolios and that our strategy will deliver solid long-term returns for our shareholders.

Sincerely,