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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 stocks like DraftKings Inc. (NASDAQ:DKNG). DraftKings Inc. (NASDAQ:DKNG) is an American digital sports entertainment and gaming company. On May 6, 2026, DraftKings Inc. (NASDAQ:DKNG) closed at $23.92 per share. One-month return of DraftKings Inc. (NASDAQ:DKNG) was 7.51%, and its shares lost 32.33% over the past 52 weeks. DraftKings Inc. (NASDAQ:DKNG) has a market capitalization of $11.86 billion.
Baron Discovery Fund stated the following regarding DraftKings Inc. (NASDAQ:DKNG) in its Q1 2026 investor letter:
"DraftKings Inc. (NASDAQ:DKNG) is the leading U.S. digital sports betting and iCasino operator. The stock declined as investors grappled with a guidance range that implied handle (amount bet) deceleration, elevated prediction markets investments to compete with firms like Kalshi and Polymarkets, and lingering debate around structural hold (the percentage of overage profit per bet) sustainability. The headline concerns obscure what we believe are strong fundamentals in the core sports betting business customer cohorts. Management built 2026 guidance on flat actual hold, a figure that has expanded every year in the industry's history. Parlay mix, the primary mechanical driver of hold, increased 500 basis points during NFL season and 200 basis points year to date. The $800 million EBITDA midpoint also embeds a $200 million headwind from prediction markets investment, which currently carries no associated revenue. Excluding that impact, implied core business EBITDA exceeds $1 billion. We believe the stock is trading at attractive multiples relative to the company’s long-term earnings potential and think the total addressable market for prediction markets, while nascent, has the potential to accelerate growth."
DraftKings Inc. (NASDAQ:DKNG) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 72 hedge fund portfolios held DraftKings Inc. (NASDAQ:DKNG) at the end of the fourth quarter, up from 68 in the previous quarter. While we acknowledge the potential of DraftKings Inc. (NASDAQ:DKNG) 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 DraftKings Inc. (NASDAQ:DKNG) and shared the list of best falling stocks to invest in. 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.