TimesSquare Capital Management, an equity investment management company, released its “U.S. Small Cap Growth Strategy” first-quarter 2025 investor letter. A copy of the letter can be downloaded here. In the quarter, the fund returned -9.41% (gross) and -9.64% (net), compared to a -11.12% return for the Russell 2000 Growth Index. There was a broad positive sentiment in the market at the beginning of 2025. Expectations for a pro-business and soft regulatory environment lifted global markets in January. However, delays and uncertainties surrounding U.S. policies led to a significant downturn in March. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its first-quarter 2025 investor letter, TimesSquare Capital U.S. Small Cap Growth Strategy 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 14.45%, and its shares gained 116.42% of their value over the last 52 weeks. On June 23, 2025, Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) stock closed at $43.63 per share, with a market capitalization of $6.695 billion.
TimesSquare Capital U.S. Small Cap Growth Strategy stated the following regarding Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) in its Q1 2025 investor letter:
“Many of our Industrial positions provide necessary business-to-business operational services, highly technical components, equipment enabling automation & efficiency improvements, or essential infrastructure services. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) supplies technology products, systems, and software for defense, national security, and commercial markets. Their product mix includes hypersonics, missile defense, unmanned vehicles, space, and satellite communications. Profit margin was ahead of estimates and that contributed to an earnings beat in the fourth quarter. The company released a two-year guidance framework that calls for revenue growth as well as an increase in capital expenditures on areas such as hypersonics and Valkyrie drones. The other big news from management was the establishment of a joint venture with the Israeli company Rafael for a project called Prometheus Energetics to produce solid rocket motors. These developments served to lift its shares by 14% and we built up the position with rising conviction in the business.”
A technician in a laboratory carrying out research and development of microwave electronics.
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 17 hedge fund portfolios held Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) at the end of the first quarter, compared to 21 in the fourth quarter. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) reported revenue of $302.6 million in the first quarter, surpassing its guidance range. While we acknowledge the potential of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.
In another article, we covered Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) and shared Artisan Small Cap Fund’s views on the company. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of 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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Disclosure: None. This article is originally published at Insider Monkey.
