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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 Dynatrace, Inc. (NYSE:DT). Dynatrace, Inc. (NYSE:DT) is a multinational technology company that provides AI-powered digital observability solutions. On May 6, 2026, Dynatrace, Inc. (NYSE:DT) closed at $38.21 per share. One-month return of Dynatrace, Inc. (NYSE:DT) was 12.98%, and its shares lost 21.30% over the past 52 weeks. Dynatrace, Inc. (NYSE:DT) has a market capitalization of $11.56 billion.
Baron Discovery Fund stated the following regarding Dynatrace, Inc. (NYSE:DT) in its Q1 2026 investor letter:
"We own Dynatrace, Inc. (NYSE:DT) which is architected on its own internal AI to predict failures in network software and hardware (whether in the cloud or on-premise) and works to automatically remediate the issues. It’s used by the largest companies in the world that operate in the most complex environments (airlines, financial giants, and defense companies for example).
We added to our position in Dynatrace, Inc., a provider of “observability” software. For the reasons we laid out above we believe that this is a great deterministic data-oriented company, benefiting from significant competitive advantages. However, it is trading at a rock-bottom multiple (13 times free cash flow, with that metric is likely to grow in the mid-teens for the next few years)."
Dynatrace, Inc. (NYSE:DT) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 53 hedge fund portfolios held Dynatrace, Inc. (NYSE:DT) at the end of the fourth quarter, up from 40 in the previous quarter. While we acknowledge the potential of Dynatrace, Inc. (NYSE:DT) 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 Dynatrace, Inc. (NYSE:DT) and shared the list of low priced stocks to buy with huge upside potential. 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.