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Baron Capital, an investment management company, released its Q1 2026 investor letter for the “Baron Discovery Fund”. A copy of the letter can be downloaded here. It was a difficult quarter for Baron Discovery Fund, both on an absolute and relative basis. The Fund declined 10.65% (Institutional Shares) in the quarter, compared to the Russell 2000 Growth Index’s return of -2.81%. The underperformance of 7.88% was primarily attributed to sectors such as Information Technology, Consumer Discretionary, Health Care, and Industrials, along with a lack of exposure to Energy. The Fund sees the current SaaS-pocalypse as an opportunity to invest in compelling prospects among software companies that possess robust and sustainable competitive advantages. In addition, please check the Fund’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Baron Discovery Fund highlighted Netskope, Inc. (NASDAQ:NTSK). Netskope, Inc. (NASDAQ:NTSK) is a leading cloud security company that offers security, networking, and analytics solutions to enterprises. On May 6, 2026, Netskope, Inc. (NASDAQ:NTSK) closed at $10.55 per share. One-month return of Netskope, Inc. (NASDAQ:NTSK) was 24.56%, and YTD its shares lost 39.85%. Netskope, Inc. (NASDAQ:NTSK) has a market capitalization of $4.22 billion.
Baron Discovery Fund stated the following regarding Netskope, Inc. (NASDAQ:NTSK) in its Q1 2026 investor letter:
"Shares of Netskope, Inc. (NASDAQ:NTSK), a cloud security and networking platform for enterprises, were down due to a combination of sector-wide and technical factors rather than fundamental weakness. The entire application software sub-sector experienced a sharp drawdown as investors weighed AI disruption risks, and recent IPOs like Netskope bore the heaviest losses. Adding to the pressure, Netskope's lock-up expiration in mid-March made roughly 390 million shares eligible for sale, creating a supply overhang that coincided with the worst of the sub-sector selloff. The business itself performed very well— fiscal fourth quarter (ended January 31, 2026) revenue grew 32%, annualized recurring revenue (ARR) reached $811 million, and grew 31%, the company posted record quarterly net new ARR, and achieved positive free cash flow for the first time. Management guided fiscal 2027 revenue above consensus expectations. We maintain conviction in Netskope's long-term positioning in the SASE market, where demand for securing cloud and AI workloads continues to grow, and view the current valuation as disconnected from the company's growth trajectory and competitive standing."
Netskope, Inc. (NASDAQ:NTSK) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 27 hedge fund portfolios held Netskope, Inc. (NASDAQ:NTSK) at the end of the fourth quarter, compared to 44 in the previous quarter. While we acknowledge the potential of Netskope, Inc. (NASDAQ:NTSK) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
In another article, we covered Netskope, Inc. (NASDAQ:NTSK) and shared the list of best cybersecurity stocks to Invest in according to analysts. In addition, please check out our hedge fund investor letters Q1 2026 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.