Baron Funds, an investment management company, released its “Baron Discovery Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. Year-to-date, the fund was up 10.75% (Institutional Shares), compared to a 11.65% return for the Russell 2000 Growth Index. The fund was up 2.85% in the third quarter, lagging behind the Index’s 12.19% return. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its third-quarter 2025 investor letter, Baron Discovery Fund highlighted stocks such as Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS). Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a technology company that offers mission-critical products, services, and solutions. The one-month return of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) was -3.42%, and its shares gained 280.58% of their value over the last 52 weeks. On October 28, 2025, Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) stock closed at $89.78 per share, with a market capitalization of $15.154 billion.
Baron Discovery Fund stated the following regarding Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) in its third quarter 2025 investor letter:
“Leading defense technology provider Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) contributed to performance following a strong earnings report and continued momentum across its business segments. Years of investment are beginning to pay off, with the company winning new contracts across multiple divisions. The current defense spending cycle appears to be in a generational upswing amid heightened global conflicts, and Kratos’ innovative solutions position it well to support the U.S. Armed Forces. The current administration’s openness to smaller, agile defense contractors further strengthens Kratos’ opportunity to secure larger awards, supporting our continued conviction in the company.”
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) at the end of the second quarter, which was 17 in the previous quarter. While we acknowledge the potential of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) 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.
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