Baron Capital, an investment management company, released its Q2 2026 investor letter for the “Baron Discovery Fund”. A copy of the letter is available to download here. Baron Discovery Fund appreciated by 19.08% (Institutional Shares) in the quarter, underperforming the Russell 2000 Growth Index, which gained 25.71%. This lag was primarily due to a momentum-driven “AI winners” trade, with these stocks largely contributing to the Benchmark’s performance. The Fund experienced a 6.63% underperformance, largely driven by an underweight in strong-performing Momentum and Beta factors. The Fund prioritizes a long-term balanced portfolio over chasing momentum. The letter discussed parallels between the current AI market and the late 1990s dot-com bubble. The firm remains focused on company fundamentals and long-term valuation. Please review the fund’s top five holdings to gain insights into their key selections for 2026.
In its Q2 2026 investor letter, Baron Discovery Fund highlighted Karman Holdings Inc. (NYSE:KRMN). Karman Holdings Inc. (NYSE:KRMN) is an American defense technology company that designs and manufactures mission-critical systems. On August 11, 2026, Karman Holdings Inc. (NYSE:KRMN) closed at $61.94 per share, reflecting a market capitalization of $8.21 billion. Karman Holdings Inc. (NYSE:KRMN) posted a one-month return of 26.98%, while its shares gained 19.51% over the past 52 weeks.
Baron Discovery Fund stated the following regarding Karman Holdings Inc. (NYSE:KRMN) in its Q2 2026 investor letter:
“Karman Holdings Inc. (NYSE:KRMN) designs, tests, and manufactures mission critical systems for existing and emerging missile and space programs, which are some of the growthiest and in-demand segments of the defense industry. It has unique experience in complex/proprietary manufacturing methods, high-end materials and composites, and system level design. Nearly 90% of Karman’s sales are sole-sourced from the company, and 94% of its revenue is tied to proprietary IP-driven solutions (including patent-protected technologies). This enables it to drive adjusted cash flow margins in excess of 30%. Shares declined during the quarter for a few reasons. First, markets are concerned about noise related to the defense budget during an election year, as well as the reversal of momentum into defense stocks earlier in the year when the Iran war started. This has compressed multiples across the industry. Second, in May there was a secondary share sale on behalf of Karman’s private equity sponsor and its limited partners (we believe the sponsor is done selling its own shares, though some limited partners are likely to sell more in July). Finally, the company also changed its CEO, with Tony Koblinski stepping back to the board on his way to retirement. We very much liked Tony’s leadership and admired his construction of the company as it exists today. We have now met with new CEO Jon Rambeau multiple times and we are confident that he will be able to move Karman to the next level. Jon is a mechanical engineer with a fantastic breadth of experience at Lockheed Martin and L3Harris Technologies….” (Click here to read the full text)
Karman Holdings Inc. (NYSE:KRMN) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 43 hedge fund portfolios held Karman Holdings Inc. (NYSE:KRMN) at the end of the first quarter, up from 36 in the previous quarter. While we acknowledge the risk and potential of Karman Holdings Inc. (NYSE:KRMN) 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 Karman Holdings Inc. (NYSE:KRMN) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Karman Holdings Inc. (NYSE:KRMN) and shared Carillon Eagle Mid Cap Growth Fund’s insight on the company. In Q2 2026, Alger Mid Cap Focus Fund shared optimistic views on Karman Holdings Inc.’s (NYSE:KRMN) long-term growth potential. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.
READ NEXT: 33 Stocks That Should Double in 3 Years and 15 Stocks That Will Make You Rich in 10 Years.
Disclosure: None. This article is originally published at Insider Monkey.
