Baron Funds has issued its investor letter for the Baron Discovery Fund for the second quarter of 2024. The report highlights a 7.78% decline in the Institutional Shares of the fund, underperforming compared to the 2.92% return of the Russell 2000 Growth Index. The fund’s poor performance was largely driven by the ten worst-performing equities, which contributed to a 6.52% drop in the fund’s value. Baron Funds attributes this decline to macroeconomic factors and the trading environment, noting that these issues could potentially reverse.
Among the stocks discussed in the report is Astera Labs, Inc. (NASDAQ), a company specializing in semiconductor-based connectivity solutions for cloud and AI infrastructures. During the quarter, Astera Labs’ stock experienced a 9.22% decline over the month and a significant 41.98% decrease over the past three months. As of August 23, 2024, the stock closed at $41.77 per share, with a market capitalization of $6.544 billion.
The Baron Discovery Fund’s letter explained the firm’s investment rationale regarding Astera Labs:
“AI models are advancing rapidly, achieving functionalities previously thought to be science fiction. While large-cap AI hardware companies are currently receiving significant market attention, we focus on promising small-cap AI hardware investments. In Q2, we invested in Astera Labs, a small-cap semiconductor company involved in analog semiconductors that enhance communication between components on a motherboard and servers. Although we initially bought shares at the IPO, the stock’s rapid appreciation due to hype surrounding AI hardware led us to sell as it surpassed our valuation expectations. We continue to monitor the stock for potential future opportunities.”
Astera Labs is not listed among the 31 Most Popular Stocks Among Hedge Funds. At the end of Q2 2024, 19 hedge fund portfolios held shares in the company, a decrease from 28 in the previous quarter. Astera Labs reported a revenue of $76.9 million for Q2, reflecting an 18% quarter-over-quarter increase and a 619% year-over-year rise from Q2 2023.
While the potential of Astera Labs is recognized, Baron Funds emphasizes its belief that AI stocks, in general, offer higher return prospects in the short term. For those interested in AI stocks with strong potential but lower valuations, the fund suggests checking out their report on the most affordable AI stocks.
For more information, including other hedge fund investor letters and top stock picks, visit the hedge fund investor letters Q2 2024 page.
