Baron Fifth Avenue Growth Fund Q3 2025 Performance Update

The following segment was excerpted from the Baron Fifth Avenue Growth Fund Q3 2025 Shareholder Letter.

Baron Fifth Avenue Growth Fund® (the Fund) gained 5.7% (Institutional Shares) during the third quarter, lagging the 10.5% gain for the Russell 1000 Growth Index (R1KG) and the 8.1% gain for the S&P 500 Index (SPX), the Fund’s benchmarks.

Year to date, the Fund is up 14.4% compared to gains of 17.2% and 14.8% for the Fund’s benchmarks, respectively.

Top contributors to performance for the quarter

NVIDIA Corporation (NVDA) is a fabless semiconductor company specializing in platforms for accelerated computing. Its dominant position in AI infrastructure with a comprehensive portfolio spanning graphics processing unit (GPUs), systems, software, and high-performance networking solutions, continues to drive strong performance. Shares rose 18.1% during the quarter as investor confidence in AI infrastructure expansion grew. NVIDIA reported mid-term visibility of tens of GWs in AI buildouts, with each GW representing an estimated $35 billion total addressable market (TAM). During its last earnings call, the company announced that its long-term TAM expanded from $1 trillion to between $3 and $4 trillion, while more recently announcing a 10 GW deal with OpenAI. As AI infrastructure investment accelerates, NVIDIA’s leadership continues to strengthen through durable moats across compute silicon, networking, systems, software, and supply chain. We maintain a long-term constructive view, as leading AI labs show growing confidence in their ability to achieve human-level intelligence and deploy AI products in enterprise settings. All the industries bottlenecked by intelligence will leverage AI, unlocking trillions of dollars in value. Most of these AI workloads will be supported by large language models running in the datacenters. NVIDIA is uniquely positioned to power this transformation through its full-stack approach, spanning silicon, systems, software, and developer ecosystem, and hence its competitive moat continues to widen.

Shopify Inc. (SHOP) is a cloud-based software provider for multi-channel commerce. Shares rose 28.6% during the quarter as the company continued to deliver stellar results, with second quarter revenue up 30% year-over-year in constant currency, reflecting sustained market share gains driven by 29% growth in gross merchandise volume (GMV). Growth was broad-based across Shopify’s core e-commerce merchant base and supported by successful expansion into offline, international, and business-to-business channels, which grew 29%, 42%, and 101%, respectively.

Shares also benefited from developments in agentic commerce, underscored by Shopify’s recently announced partnership with OpenAI, the owner of ChatGPT. We believe the company’s maturing product suite is becoming increasingly attractive to merchants of all sizes and geographies, enabling it to further expand its addressable market. We remain shareholders due to Shopify’s strong competitive positioning, innovative culture, and long runway for growth, as it still holds less than a 2% share of the global commerce market.

Tesla, Inc. (TSLA) designs, manufactures, and sells fully electric vehicles (EVs), related software and components, solar products, and energy storage solutions. Shares rose 40.0% during the quarter due to three key catalysts. First, Tesla’s core automotive business is showing renewed strength, with record third quarter delivery volumes across major markets following an enthusiastic consumer response to a new Model Y variant in China and the expiry of EV credits in the U.S. Second, investor confidence in the company’s long-term vision and in Elon Musk’s leadership was reinforced by a newly proposed CEO compensation package and nearly $1 billion in personal share purchases by Musk. Finally, Tesla’s AI initiatives continue to advance rapidly, highlighted by the Austin robotaxi network’s expansion from 20 to over 170 square miles since its June 2025 launch and plans for rollouts to additional cities. The Full Self-Driving version 14 release is also expected to deliver a major leap in capability for the company’s consumer-owned fleet, while humanoid robot production is anticipated next year as Tesla finalizes its latest Optimus design.

Top detractors from performance for the quarter

The Trade Desk (TTD) is the leading internet advertising demand-side platform (DSP), enabling agencies to efficiently purchase digital advertising across Connected TV (CTV), PC, mobile, and online video channels. Shares declined 31.9% during the quarter as the company reported in-line earnings relative to conservative guidance amid a strong quarter for peers in digital advertising. Trade Desk’s TAM remains large and underpenetrated, but advertisers may take longer to shift towards biddable programmatic CTV advertising and could be drawn to lower fees offered by competitors. We continue to monitor the competitive landscape, particularly as Amazon enters the market more meaningfully with its rapidly improving DSP offering. Even so, we believe Trade Desk remains the market leader. Execution has improved in managing the rollout and client adoption of the company’s upgraded Kokai platform, and operations have stabilized following organizational changes in late 2024. As growth has moderated going forward, we have significantly reduced our position.

Intuitive Surgical, Inc. (ISRG) manufactures the da Vinci robotic surgical system for minimally invasive surgical procedures. Shares detracted from performance in the quarter declining 17.7%, due to system placements in the U.S. falling short of investor expectations. In addition, investors are concerned about financial pressure on hospital customers resulting from cuts to Medicaid in the One Big Beautiful Bill Act. Finally, concerns emerged about the use of reprocessed instruments from third parties with Intuitive’s robotic systems. We believe it is unlikely that hospitals would be willing to take a risk using third party reprocessed instruments because of the potential for quality, reliability, and liability issues. We continue to believe Intuitive has a long runway for growth driven by the continued adoption of the company’s robotic systems in an expanding number of surgical procedures.

MercadoLibre, Inc. (MELI), the leading e-commerce marketplace across Latin America, detracted from performance as shares declined 10.6% due to macro and competitive pressures and despite strong quarterly results across GMV – up 21% year-on-year, total payments volume – up 39%, and revenues – up 34%. On the macro side, the sharp sell-off in Argentine assets weighed heavily on the shares given that Argentina represents roughly 20% of MercadoLibre’s revenues and 40% of direct group contribution. The Argentine business, which had been a source of recent growth upside and upward forecast revisions, now faces potential downside as consumer confidence and currency stability have deteriorated. At the same time, Amazon, one of MercadoLibre’s largest competitors in the region, announced new promotional rates for sellers in Brazil, reinforcing concerns around intensifying competition in e-commerce. While these factors drove near-term pressure, we maintain conviction in MercadoLibre’s long-term opportunity: the company remains uniquely positioned to capture a large share of Latin America’s underpenetrated e-commerce and fintech markets, with scale, brand trust, and a powerful ecosystem that continue to provide significant competitive advantages.

Recent Activity

During the third quarter, we initiated a small investment in the collaborative design platform, Figma. We also added to four existing holdings: the global alternative asset manager, KKR, the leading search and advertising company, Alphabet, the leading global semiconductor manufacturer, Taiwan Semiconductor, and the cybersecurity platform, CrowdStrike. We funded the purchases by reducing seven other holdings where we chose to actively manage position sizing and by exiting our investments in GitLab (GTLB) and Mobileye (MBLY).

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.