Baron Opportunity Fund | Q1 2026

During the first quarter, Baron Opportunity Fund® (the Fund) declined 8.88% (Institutional Shares), outperforming the Russell 3000 Growth Index (the Benchmark), which fell 9.54%, but trailing the S&P 500 Index, which dropped 4.33%.

Market Backdrop

U.S. equity markets maintained positive momentum to begin the year, supported by investor enthusiasm about the pro-growth policies of the Trump administration, with an emphasis on reshoring and AI-driven productivity. Easing inflation pressures, resilient economic data, and strong corporate earnings also contributed to buoyant market conditions early in the quarter. At the same time, investors appeared unfazed by rising geopolitical risks associated with the U.S. military operation to remove Venezuelan President Maduro, President Trump’s threats to impose tariffs on several European countries that opposed his plans to take over Greenland, and Iran’s brutal crackdown on protests and the possibility of U.S. military intervention.

Market sentiment began to shift in February, with the early catalyst being widespread losses across a range of industries, including software, business services, and information services, owing to fears about AI-driven disruption. Anthropic’s release of specialized Claude Cowork plugins, which enable AI to function as domain-specific analysts across legal, finance/accounting, sales/ marketing, and customer support, initially contributed to software and services weakness, as it caused investors to worry that AI agents could directly replace expensive human-led, subscription-based business workflows.

The sell-off worsened after the U.S. and Israel attacked Iran on February 28, killing the country’s Supreme Leader and other high-ranking officials. In response, Iran launched retaliatory missile and drone strikes against U.S. and Israeli interests, targeting areas in the Gulf, including Kuwait, Iraq, Qatar, and the United Arab Emirates. The conflict disrupted energy supplies and blocked shipping lanes in the Strait of Hormuz. With no clear signs of de-escalation in sight, investors became concerned about the potential for sustained inflation and reduced economic growth from surging oil prices and supply chain disruptions.

Against this backdrop, the dominant market trend was the continued rotation out of the Magnificent Seven, software, and other growth-oriented stocks into cyclical/commodity sensitive, defensive, and other value-leaning segments of the market. The Magnificent Seven complex declined 11.3%, accounting for about 90% of the S&P 500 Index’s losses. The group was hurt by concerns about earnings growth being pressured by substantial AI-driven capital expenditures. The non-Magnificent Seven stocks in the Index were down only 0.6% for the quarter. Sector performance was mixed for the quarter, with the gainers being defensive and cyclical/commodity sensitive sectors such as Energy, Materials, Utilities, Consumer Staples, Industrials, and Real Estate.
 

Performance

We manage the Fund with an unwavering focus on powerful secular growth trends that disrupt industries and create sustained, profitable growth opportunities — not short-term geopolitical disruptions or sentiment swings, like those that pressured markets and the Fund alike in the first quarter. Transformative secular trends — such as AI; space exploration and technology; autonomous transportation; robotics; digital commerce; media; finance; advanced therapeutics and minimally invasive surgery — will shape the future and drive long-term investment returns.

This first quarter was not a favorable backdrop for the Fund — with a war breaking out, higher oil prices and inflation, AI-related fears, and rotations out of growth stocks. The Fund declined almost 9%, trailing the broader-market S&P 500 Index, but it still outperformed its primary Benchmark.

The Fund’s stand-out contributor to relative performance during the period was launch and satellite broadband groundbreaker Space Exploration Technologies Corp. (SpaceX), a high-profile private company founded by Elon Musk. SpaceX is now the largest holding in the portfolio and the largest overweight position versus the Benchmark. Our top absolute and second-best relative performer was T-cell therapy innovator Arcellx, Inc., whose stock surged after partner Gilead Sciences, Inc. announced plans to acquire the company. In the Information Technology and Industrials sectors, our investments in companies benefiting from AI-infrastructure investments contributed to absolute and relative performance, including Taiwan Semiconductor Manufacturing Company Limited (the world’s advanced-semiconductor manufacturing champion), Nova Ltd. (leading provider of advanced metrology solutions for semiconductor manufacturing), GDS Holdings Limited (leading China data center operator), Monolithic Power Systems, Inc. (high-performance power management semiconductor leader), Lumentum Holdings Inc. (optical technology leader), and Quanta Services, Inc. (electric grid and energy infrastructure buildout leader). The portfolio also benefited from its underweight in Microsoft Corporation, which fell sharply along with other Magnificent Seven and software names.

The Fund’s investment in CoStar Group, Inc. (commercial real estate data, analytics, and marketing services provider) was the largest drag on relative performance. The Fund’s underweight in Alphabet Inc., a position we were building during the period (see below), and its non-ownership of Apple Inc., which held up better than other Magnificent Seven names, also weighed on relative performance. Other relative performance laggards included companies impacted by the AI-disruption trade, such as software vendors Atlassian Corporation, Zscaler, Inc., Snowflake Inc., and Shopify Inc.; global streaming music and content leader, Spotify Technology S.A.; and syndicated research and advisory firm, Gartner, Inc.
 

AI Update

Just over three years since the “ChatGPT moment” rang the opening bell of the age of AI, we find ourselves in the fastest-moving technology disruption we have experienced as investors. The pace of innovation across AI models, semiconductors, networking, and software is extraordinary. As we have written before, we are deep research, evidence-based investors — and in an environment moving this fast, we believe it is critical to be on the ground, meeting with the people building the technology, the companies deploying it, and the enterprises adopting it, rather than relying on second-hand analysis.

During the quarter, our team traveled to the West Coast to meet with senior leadership across semiconductors, software, infrastructure, and private AI-native companies. We attended NVIDIA’s GTC conference and the Optical Fiber Conference, participated in expert panels and technical sessions, and spoke with IT teams at Fortune 500 companies and global systems integrators to understand firsthand how AI adoption is expanding across workflows and budgets. We also met with venture capital investors and domain experts focused on where durable AI value will and will not accrue. As our founder Ron Baron says, research starts with people — and this level of corporate access informs not just individual stock decisions but the broader analytical framework we apply across the portfolio.
 

AI Infrastructure: Silicon and Networking

Multiple AI scaling laws remain intact — across pre-training, post-training, inference-time compute, context windows, and memory — and frontier AI labs continue to demonstrate step-function improvements in model capability with each successive generation of compute. This insatiable demand has fueled an infrastructure buildout of historic proportions. Amazon, Alphabet, Microsoft, and Meta have collectively guided to approximately $650–$700 billion of capital expenditures in 2026, roughly triple the level from just two years ago, with the vast majority directed at AI data centers, chips, and networking.

NVIDIA Corporation remains the dominant platform for AI training and inference. At GTC, the company unveiled a more diversified product roadmap — including Vera CPU-only servers for agentic workloads and an expanded inference strategy — reflecting the organizational agility we look for in management teams. We continue to view NVIDIA as the leading merchant platform for bringing AI to the world, with a long runway driven by enterprise adoption and Physical AI.

The shift toward custom silicon is also accelerating. Broadcom Inc. confirmed an expanded agreement with Alphabet for next-generation Tensor Processing Units (TPUs) and a deal to supply approximately 3.5 gigawatts of compute capacity to Anthropic. Broadcom is the only partner capable of matching the annual development cadence hyperscalers and AI labs require at scale. On the Amazon.com, Inc. side, CEO Andy Jassy disclosed that its custom chip business — spanning Trainium, Graviton, and Nitro — has reached a $20 billion annual revenue run rate, growing at triple-digit rates. We are positioned to benefit from this multi-architecture evolution through our ownership of NVIDIA, Broadcom, Alphabet, and Amazon.

In networking and optical interconnects, all component suppliers are supply constrained and the content opportunity is expanding as optics penetrate deeper into the data center. We hold positions in Lumentum and Coherent Corp., well-positioned for this multi-year expansion, and in Arista Networks, Inc., whose software moat and hardware leadership make it a core long-term holding.
 

The Rise of the AI Labs and the ROI Inflection

A persistent question throughout 2025 was whether hundreds of billions of dollars poured into AI infrastructure would yield a meaningful return on investment. We are now seeing compelling evidence that an ROI inflection is underway. AI inference hit a step-function acceleration in late 2025, catalyzed by Anthropic’s Opus 4.5 release, triggering a surge in corporate AI adoption and token consumption. Anthropic’s annualized revenue run rate surged from approximately $9 billion at year end 2025 to over $30 billion as of early April 2026, with more than 1,000 enterprise customers spending over $1 million annually — a figure that doubled in under two months.⁵ OpenAI is now generating $2 billion in monthly revenue, ChatGPT’s weekly active user base exceeds 900 million, and its coding agent serves over 2 million users, up 5 times in three months.⁶ Both companies are investing aggressively in compute, with expected capacity buildouts of 5 to 6 gigawatts each by year-end. The ROI case we have been building is showing strong promise.

We are not just observers — our research teams are actively using AI models, agents, and purpose-built tools from all leading providers to enhance our process: accelerating earnings analysis, synthesizing filings and transcripts, building proprietary data trackers, and developing structured investment frameworks. I’m using Anthropic’s Claude to help edit this letter!
 

Navigating the Software Transition

While semiconductors and infrastructure are indisputable beneficiaries of the AI revolution, the software sector is experiencing its most dramatic valuation re-rating since the dot-com era. Year-to-date through March 31, the median public software company declined roughly 25%, with multiples compressing to 10-year lows. This decline has been largely indiscriminate — driven not by deteriorating fundamentals but by fear that AI will disrupt software incumbents. We take these concerns seriously, but we believe the selling has created an analytical opportunity. Not all software companies face the same AI risk. Some will be disrupted, some will prove resilient, and some will emerge as significant beneficiaries. We have used this sell-off to upgrade portfolio quality and position the Fund in businesses that can survive and thrive through the AI transition —companies that are market-share leaders growing faster than competitors, with pricing models aligned to usage or outcomes rather than headcount, leveraging AI and proprietary data to compound their competitive advantages, and led by founders with the authority and willingness to self-disrupt.

Samsara Inc. is the market-share leader in connected operations and fleet telematics, with cameras and sensors on millions of commercial vehicles generating 20 trillion data points annually —physical and data moats the AI labs cannot easily replicate. Shopify grew revenue 30% last year at nearly $12 billion in scale, with founders Tobi Lütke and Harley Finkelstein building the platform for agentic commerce. Datadog, Inc. has accelerated revenue growth for three consecutive quarters and is one of the largest commercial vendors to nearly every major AI startup; its consumption-based observability platform grows as AI workloads multiply. These stocks are down this year because the market sold the sector indiscriminately — yet all are bigger businesses, growing faster, with stronger competitive positioning than a year ago. We believe these are the types of companies that emerge intact on the other side of the AI transition — and at current valuations, the risk/reward is increasingly attractive.
 

Our AI Infrastructure Positioning

Our AI infrastructure holdings — NVIDIA, Broadcom, Alphabet, Amazon, Arista Networks, Lumentum, Coherent, and Datadog — span every critical layer of the buildout. We are particularly constructive on Alphabet and Amazon as the only two hyperscalers designing custom AI chips at scale, with Alphabet also developing frontier models — a vertical integration of silicon, infrastructure, and intelligence that we believe gives both companies a structural advantage the market does not yet fully reflect.

Looking further ahead, one of the binding constraints on AI scaling is the availability of energy and cooling capacity to power ever larger compute clusters. As launch costs decline and payload capacity to orbit increases, space is emerging as a potentially important new frontier for AI infrastructure, where constant sunlight and the vacuum of space offer compelling physics for large-scale compute. To address the chip-capacity constraints that accompany this growing demand, Tesla, Inc. and SpaceX recently announced the Terafab initiative, a strategic effort to build domestic semiconductor manufacturing at unprecedented scale. The ambition is to dramatically improve capital efficiency, accelerate product innovation, and ensure that the supply of AI silicon keeps pace with what is shaping up to be the largest infrastructure buildout of the 21st century.

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

• AI
• Semiconductors
• Cloud computing
• Software-as-a-service
• Digital media/entertainment
• Targeted digital advertising
• E-commerce
• Targeted medicine/therapies
• Minimally invasive surgical procedures
• Cybersecurity
• Electric vehicles/autonomous driving
• Electronic payments
• Robotics
• Space technology

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:

• Space technology: Space Exploration Technologies Corp.
  • Software and digital services: Datadog, Inc., Samsara Inc., and Via Transportation, Inc., Axon Enterprise, Inc., Guidewire Software, Inc., and Shopify Inc.
  • Digital/other health care: BillionToOne, Inc. and Heartflow, Inc.
  • Semiconductors: indie Semiconductor, Inc.
  • Networking: Arista Networks, Inc.

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.

Shares of Arcellx, Inc. contributed to performance. Arcellx is a clinical-stage biopharmaceutical company developing anito-cel, a chimeric antigen receptor T-cell therapy targeting B-cell maturation antigen (BCMA CAR-T) for the treatment of multiple myeloma. Anito-cel is designed to offer similar efficacy to competing therapies while avoiding the significant neurological side effects associated with others in its class, which we believe would be a meaningful point of differentiation. We see this profile as a significant opportunity to drive penetration of what we estimate to be a $12 billion market for second line and beyond multiple myeloma treatments. Shares appreciated in the first quarter of 2026 after partner Gilead Sciences, Inc. announced plans to acquire Arcellx for $115 per share, plus a $5 per share contingent value right tied to cumulative revenues through year-end 2029.

Shares of Nova Ltd., an Israeli provider of process control and metrology solutions for semiconductor manufacturing, contributed to performance, driven by robust demand amid a strong AI-fueled semiconductor capital expenditure cycle. Nova specializes in the precise measurement of materials during chip fabrication, a capability that is growing ever more critical as semiconductor devices become increasingly complex. Nova has consistently outgrown semiconductor equipment spending, gaining share in dimensional and materials metrology through its differentiated technology. During the second quarter, we exited the position and invested the proceeds into ASML Holding N.V., a Dutch semiconductor equipment company and the world’s sole provider of extreme ultraviolet lithography systems, where we see a more compelling long-term opportunity across several dimensions (see further discussion below).

Shares of Tesla, Inc., which designs, manufactures, and sells fully electric vehicles, solar products, and energy storage solutions while developing real-world AI technologies and applications, detracted from performance this quarter as the stock consolidated following robust gains in late 2025, with investors awaiting robotaxi progress and digesting Tesla’s sizable investments in manufacturing and AI. Operationally, results were strong despite a challenging electric vehicle market: automotive gross margins rose materially in the fourth quarter of 2025, beating expectations and reaching their highest level in two and a half years, while energy storage margins approached 30%. Tesla continues to advance its AI and autonomy initiatives at full speed — the company anticipates meaningful robotaxi expansion in 2026, released a newer version of its autonomous driving software, and commenced production of its Cybercab, its first purpose-built autonomous transportation platform. Nevertheless, investors continue to scrutinize the pace of robotaxi deployment against Waymo’s ongoing scaling, and Tesla’s decision to more than double its annual capital expenditures — including its ambitious Terafab domestic chip manufacturing initiative — has heightened near-term perceived risk. We believe these strategic investments can materially strengthen Tesla’s competitive position in the AI-first world, and we remain confident in the company’s long-term growth across electric vehicles, energy storage, and autonomous driving. Looking further ahead, Tesla’s Optimus humanoid robot program may prove to be its most transformative initiative of all — Elon Musk has called it potentially the most valuable product in human history, and we believe the program’s progress warrants serious attention from long-term investors.

Shares of Microsoft Corporation, the world’s largest software and cloud computing company, detracted from performance before we exited the position during the quarter. Our decision to sell was driven by a combination of near-term execution shortfalls and longer-term structural concerns about the company’s competitive positioning in AI. On the near-term side, Azure revenue growth came in below expectations, as capacity constraints, including the allocation of capacity to first-party applications, continued to hamper results. More importantly, our view on Microsoft’s longer-term positioning has shifted. The company remains heavily dependent on OpenAI for its core AI models, representing meaningful vendor concentration risk, while its own internal AI development efforts have been underwhelming. Microsoft has also struggled to gain traction with its first-party AI applications, with adoption of its Microsoft 365 Copilot product remaining limited relative to its enormous installed base of commercial users. We believe nimbler competitors are pulling ahead rapidly at the enterprise AI application layer — and in an era where the pace of innovation is paramount, we do not believe that being a fast follower with adequate but not leading products is a viable long-term strategy. As the new agentic technology stack is built out, Microsoft's historical competitive moat — built on distribution, bundling, and deep enterprise entrenchment — appears less durable than it was during prior platform shifts. For these reasons, we exited the position during the quarter, though we will continue to monitor the company's progress closely and remain open to revisiting our investment view should the competitive dynamics shift in Microsoft's favor.

Shares of NVIDIA Corporation, a semiconductor and systems company specializing in compute and networking platforms for accelerated computing, detracted from performance during the quarter as concerns over the sustainability of AI infrastructure capital expenditure intensified, with many market participants coming to view 2027 as a peak spending year, and as NVIDIA’s largest customers continue pursuing custom silicon architectures, raising questions about the company’s longer-term revenue trajectory. We retain conviction in the position. Demand for AI infrastructure remains insatiable, driven by continued returns to scaling training workloads and a meaningful inflection in inference demand, and the remarkable acceleration in revenues at frontier AI labs — accompanied by improving unit economics — validates the sustainability of long-term infrastructure investment. While some hyperscalers and AI labs are pursuing in-house silicon programs, these efforts remain in early stages and require substantial investment in both design and software, with Google’s TPUs and Amazon’s Trainium being the notable exceptions. We expect NVIDIA to continue performing well with its largest customers while expanding its footprint across sovereign deployments, on-premise enterprise installations, and cloud infrastructure buildouts globally. At current prices, the stock is attractively valued on next year’s estimated financial results, and we believe AI compute demand is a durable, multi-year phenomenon — not the peak cycle the market fears. We continue to maintain NVIDIA as a top holding.

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 fourth quarter, the largest market cap holding in the Fund was $4.2 trillion and the smallest was $500 million. The median market cap of the Fund was $63.2 billion, and the weighted average market cap was $1.4 trillion.

To end the quarter, the Fund had $1.6 billion of assets under management. We had investments in 46 unique companies. The Fund’s top 10 positions accounted for 64.2% of net assets.

During the first quarter, we initiated a position in Alphabet Inc., the parent company of Google and one of the world’s most valuable technology franchises. After missing Alphabet’s strong run in the latter part of 2025, we took a fresh look at the competitive landscape across hyperscalers and frontier AI labs and concluded that Alphabet offers the most compelling combination of assets in AI at an attractive valuation. We believe that combination includes unmatched consumer distribution across Search, YouTube, Chrome, and Android — including seven products with over two billion users each — proprietary Gemini frontier models, custom tensor processing unit chips, owned data center infrastructure, and decades of unrivaled user and advertiser data. This fully integrated and cost-advantaged AI stack is funded by one of the most cash-generative business models in the world. Despite the rise of AI-native competitors, Search and YouTube continue to grow at double-digit rates at enormous scale and have not missed advertising revenue expectations once since the launch of ChatGPT in November 2022. Meanwhile, Google Cloud is accelerating (we are projecting over 60% year-over-year revenue growth for this segment), driven by demand from leading frontier AI labs and a growing base of AI-forward enterprise customers. We are also encouraged by management’s observation that AI features are deepening user engagement rather than disrupting it, with more complex and multimodal queries driving more time on platform. Alphabet is one of a very small number of companies in the world with the distribution, capital, proprietary data, and technical infrastructure to compete and win across multiple layers of the AI ecosystem simultaneously — and at a reasonable valuation, we see a compelling long-term opportunity for shareholders.

During the first quarter, we initiated a position in Forgent Power Solutions, Inc., a leading manufacturer of custom electrical distribution equipment serving data centers, the power grid, and energy-intensive industrial applications. Unlike larger competitors that focus primarily on standardized, higher-voltage products, Forgent specializes in low- and medium-voltage equipment engineered to customer specification (referred to as “engineered-to-order”) — and has built a unique competitive advantage by delivering these custom products faster than competitors can deliver standard ones, through a differentiated customer engagement model, manufacturing floor design, and supply chain management. Electrical distribution equipment, including power transformers, remains one of the key bottlenecks in the broader data center infrastructure buildout, and Forgent is exceptionally well positioned to capitalize. The company is nearly finished investing in a manufacturing footprint capable of supporting five billion dollars in annual revenue — one of the largest and most modern in the industry — and its annualized order book of approximately $3 billion dollars and backlog of approximately $1.5 billion dollars as of year-end 2025 provide strong near-term revenue visibility. Despite carrying some excess capacity today, Forgent already generates near best-in-class profitability, which we expect to expand meaningfully as volumes scale. The company is led by a strong, experienced management team with ambitious but credible growth aspirations, and we believe Forgent is well positioned to achieve their CEO’s goal of growing from roughly $1 billion dollars in revenue today to $5 billion dollars or more over the next several years, supported by durable data center and grid capital expenditure tailwinds and continued share gains.

During the first quarter, we initiated a position in ASML Holding N.V., a Dutch semiconductor equipment company and the world’s sole provider of extreme ultraviolet lithography (EUV) systems — the indispensable technology required to manufacture the most advanced chips at the smallest geometries. Without ASML’s machines, chipmakers cannot achieve the transistor densities needed to power artificial intelligence accelerators, flagship smartphones, autonomous vehicles, and other high-performance computing applications. This is not a temporary competitive advantage — the extraordinary complexity of EUV lithography and its sprawling global supply chain make it virtually impossible for any competitor to replicate, and we expect ASML’s monopoly position to endure for the foreseeable future. As we noted earlier in this letter, we exited our position in Nova Ltd. and redeployed the proceeds into ASML, where we see a more compelling long-term opportunity across several dimensions. As leading chipmakers race to expand advanced manufacturing capacity to meet surging AI demand, we expect ASML to benefit from rising EUV layer counts across advanced logic and memory, as well as the eventual ramp of its next-generation High-NA EUV, which offers superior resolution and enables continued transistor scaling. We are also entering a period of significant memory capacity expansion, driven by insatiable demand for high-bandwidth memory (HBM) in AI applications, and ASML is more directly levered to this buildout than Nova. Finally, ASML’s pricing power and increasing scale support significant gross margin expansion and strong double-digit earnings growth — and we believe it stands as one of the most competitively protected businesses in global technology.

During the first quarter, we also initiated a position in Lam Research Corporation, a leading provider of wafer fabrication equipment specializing in deposition and etch — two of the most critical and layer-intensive steps in chip manufacturing. We believe the semiconductor equipment industry is at an important inflection point, and that Lam is exceptionally well positioned to benefit. As CEO Tim Archer noted on the fiscal first quarter 2026 earnings call, “the surge in AI data center demand is creating billions of dollars of served available market expansion and share gain opportunity for Lam in the coming years.” To understand why, it helps to know that as chips become more complex, manufacturers must stack more layers of materials on top of one another — and each additional layer requires precisely depositing new materials and etching away unwanted ones. The proliferation of AI workloads, shrinking chip geometries, and the verticalization of chip designs are all driving a significant increase in layer counts, directly expanding demand for Lam’s core capabilities. Lam is competitively advantaged by decades of proprietary expertise in plasma etch and deposition, deep integration into its customers’ fabrication processes — which creates high switching costs — and a global installed base of over 100,000 chambers that generates recurring, annuity-like revenue, earning more over the life of a tool than from the initial sale itself. This advantage is perhaps most visible in HBM, where Lam holds virtually 100% market share for the highly complex precision etching required. We also believe the market is underestimating Lam’s earnings power as NAND memory (flash memory or non-volatile storage) capital expenditure spending recovers from one of its most severe downturns on record — having fallen approximately 50% from its 2022 peak — creating meaningful pent-up demand that we expect to benefit Lam significantly in the coming years.

During the first quarter, we initiated a position in Rubrik, Inc., a cloud-based cyber resilience platform that helps enterprises protect, secure, and recover their data across on-premise, cloud, and software-as-a-service environments. Founded in 2014, Rubrik has emerged as what we view as the last line of defense for data recovery and business continuity in an era where ransomware attacks are growing in both frequency and sophistication — and where adversaries are increasingly leveraging AI to craft more evasive attacks that can bypass traditional perimeter defenses. Rubrik’s zero-trust, immutable architecture was purpose-built for this threat environment, enabling organizations to maintain secure backups, detect threats across their data estate, and rapidly restore operations when attacks or outages occur. This has driven win rates above 90% in competitive evaluations and rapid market share gains from legacy data backup vendors whose products were designed for a different era of on-premise data centers rather than today’s diverse an distributed data environments. More than 6,000 large enterprises rely on Rubrik, and the company ended its most recent fiscal year with approximately $1.5 billion dollars in subscription annual recurring revenue, growing 34%. Beyond its core platform, Rubrik is stacking new growth vectors, including its Identity Resilience product, which grew to over 900 customers in its first year, and Agent Cloud, an AI operations platform that positions the company at the intersection of cyber resilience and the emerging agentic AI infrastructure category. We see a long runway ahead as the more than $20 billion dollar data protection and cyber resilience market expands, driven by intensifying AI-powered cyber threats, data proliferation, and new regulatory mandates. The company’s financial profile has also improved dramatically, with free cash flow margins expanding from negative at its initial public offering in April 2024 to 16% on a trailing basis, with a clear path toward further expansion. We believe the combination of accelerating market share capture, new product momentum, and improving profitability positions Rubrik well for long-term growth.

We exited successful investments in Microsoft Corporation, Arcellx, Inc., and Nova Ltd. as described above.

We sold Atlassian Corporation to help fund the upgrade of our software portfolio in the AI Update section above, including the names listed as software and digital services initiations or adds.

We sold LPL Financial Holdings Inc. and redeployed that capital into The Charles Schwab Corporation.

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 noncyclical, durable, and resilient growth should be part of investors’ portfolios and that our strategy will deliver solid long-term returns for our shareholders.

Sincerely,