Baron Funds has released its investor letter for the Baron Fifth Avenue Growth Fund, detailing its performance for the third quarter of 2025. The fund recorded a gain of 5.7% for its Institutional Shares, which, while positive, falls short when compared to the benchmarks of the Russell 1000 Growth Index and the S&P 500 Index that achieved gains of 10.5% and 8.1%, respectively. Year-to-date, the fund’s performance stands at 14.4%, still lagging behind the 17.2% rise in the Russell 1000 Growth Index and the 14.8% increase in the S&P 500.
The letter highlights Microsoft Corporation (NASDAQ:MSFT) as a key holding within the fund. Microsoft continues to be a prominent player in technology, engaging in a diverse array of software, services, and devices. Despite facing a decline of 3.38% over the past month, the company’s stock has shown resilience, having climbed 12.02% over the past year. As of December 2, 2025, Microsoft shares were priced at $490.00, bolstered by a robust market capitalization of $3.642 trillion.
Baron Funds commented on the significant prospects Microsoft holds within the rapidly evolving artificial intelligence landscape. The recent quarterly earnings reports for Microsoft have underscored the opportunities that AI presents concerning productivity improvements and potential revenue growth. Analysts from Truist have even raised their price target for Microsoft to $675 while maintaining a buy rating on the stock.
Interestingly, Microsoft has emerged as the second most favored stock among hedge funds, with 312 portfolios including it at the close of Q3, up from 294 in the preceding quarter. The fiscal year 2026’s first quarter saw Microsoft report outstanding revenue of $77.7 billion, representing an 18% increase from the previous year, or a 17% increase when accounting for constant currency.
While acknowledging Microsoft’s strengths, Baron Funds indicated that there are other stocks within their AI portfolio that may present greater upside potential and lower downside risk. They also pointed to several undervalued AI stocks expected to benefit from Trump-era tariffs and the trend towards onshoring, encouraging investors to access their insights through a complimentary report on prospective short-term AI stocks.