Baron Capital, an investment management company, released its first quarter 2026 investor letter for its “Baron SMID Cap EFT”. This is the first full quarter of results for Baron SMID Cap ETF (BCSM). A copy of the letter can be downloaded here. Baron SMID Cap ETF focuses on investing in small, fast-growing businesses that demonstrate significant long-term growth potential, possess durable competitive advantages, have exceptional management teams, and offer compelling valuations. The Fund declined 10.56% (NAV) in the first quarter, underperforming the Benchmark, the Russell 2500 Growth Index, which declined 3.52%. During this quarter, investors gravitated towards a select few companies benefiting from artificial intelligence (AI) spending, referred to as “AI winners,” while selling off those considered “losers.” This created a challenging environment for bottom-up investors, as market prices diverged from fundamental values. This disconnect, combined with the onset of conflict in Iran, impacted the portfolio’s performance during the quarter. 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 SMID Cap EFT highlighted Coherent Corp (NYSE:COHR) as a leading performance contributor. Coherent Corp. (NYSE:COHR) manufactures and markets engineered materials, optoelectronic components and devices, as well as laser systems used across data center, industrial, and communications applications. On June 3, 2026, Coherent Corp. (NYSE:COHR) closed at $417.43 per share. One-month return of Coherent Corp. (NYSE:COHR) was 30.78%, and its shares gained 424.08% over the past 52 weeks. Coherent Corp. (NYSE:COHR) has a market capitalization of $81.67 billion.
Baron SMID Cap EFT stated the following regarding Coherent Corp. (NYSE:COHR) in its Q1 2026 investor letter:
“Coherent Corp. (NYSE:COHR) is a vertically integrated provider of laser based systems. The company’s lasers are used for high power manufacturing and cutting, semiconductor manufacturing, scientific research, and defense (its legacy markets). It is also one of the leading players in photonics, which uses lasers and other components to transmit information at the speed of light. Coherent is the only major western optical transceiver manufacturer connecting servers within data centers. This is clearly a massive new market given the explosion in AI data center buildouts. In the first quarter, the excitement around AI data center buildouts drove performance in companies like Coherent that are enabling this massive wave of installations.
Coherent is led by CEO Jim Anderson who joined the company in June 2024. He has a top-shelf resume, having been the CEO of Lattice Semiconductor Corporation for the prior six years, and worked at senior positions in Advanced Micro Devices, Inc., Intel Corporation, and Broadcom Inc. before that. We have followed the company since 2010 when it was purely an industrial laser company and have owned it in various other funds at Baron. When we started BCSM, we recognized in Coherent the confluence of terrific leadership and high-quality assets with the massive buildup of AI data centers. The company believes that its existing markets for laser transceivers and optical components are valued at over $50 billion. And new products servicing AI server-oriented markets in particular could be worth an additional $20 billion. These are big opportunities for a company which put up $6.3 billion in revenue in 2025. The opportunities include products like optical circuit switches, co-packaged optics, and multi-rail optical technology. The company benefits from vertical integration as it has high-capacity manufacturing of its own lasers in multiple forms, including Indium Phosphide or InP EML’s (electro absorption modulated lasers), InP CW’s (continuous wave lasers) and VCSEL’s (vertical cavity surface emitting lasers). Only a handful of companies can do this. And the legitimacy of Coherent’s portfolio was sealed with a $2 billion investment from NVIDIA Corporation made in March 2026 to expand supply and U.S.-based manufacturing of these optical technologies. We believe that over the next five years, Coherent will more than double its revenues and cash flow.”
Coherent Corp. (NYSE:COHR) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 114 hedge fund portfolios held Coherent Corp. (NYSE:COHR) at the end of the fourth quarter, up from 109 in the previous quarter. In the third quarter of fiscal 2026, Coherent Corp. (NYSE:COHR) reported revenue of $1.8 billion, an increase of 7% sequentially, and 21% year-over-year, driven by growth in AI data center and communications demand. While we acknowledge the risk and potential of Coherent Corp. (NYSE:COHR) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than Coherent Corp. (NYSE:COHR) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Coherent Corp. (NYSE:COHR) and shared the list of stocks delivering massive returns. 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.
