Baron Funds, an investment management company, released its “Baron Discovery Fund” fourth-quarter 2025 investor letter. A copy of the letter can be downloaded here. The Fund focuses on long-term, competitively positioned companies that are well-managed and have significant potential in untapped markets. The letter also addressed the advancements in AI and how humans define themselves in the changing landscape. In Q4, the fund generated a return of 0.19% (Institutional Shares), underperforming the Russell 2000 Growth Index by 1.03 percentage points. Over the entire year, the fund posted a return of 10.96%, while the Index returned 13.01%. The outperformance of low-quality and short-term price momentum-oriented stocks affected the Fund’s focus on long-term valuation metrics. The top 10 holdings comprised 26.7% of the Fund’s net assets, with cash making up 3.3%. The Fund maintains strong optimism and expects a high-growth, low-inflation environment in 2026. Please review the Fund’s top five holdings to gain insights into their key selections for 2025.
In its fourth-quarter 2025 investor letter, Baron Discovery Fund highlighted Varonis Systems, Inc. (NASDAQ:VRNS) as one of the leading detractors. Varonis Systems, Inc. (NASDAQ:VRNS) is a software and services company focused on discovering and classifying critical data, remediating exposures, and detecting advanced threats. On February 2, 2026, Varonis Systems, Inc. (NASDAQ:VRNS) stock closed at $29.25 per share. Varonis Systems, Inc. (NASDAQ:VRNS) delivered a -12.16% return in the past month, and its shares are down 37.55% over the past twelve months. Varonis Systems, Inc. (NASDAQ:VRNS) has a market capitalization of $3.45 billion.
Baron Discovery Fund stated the following regarding Varonis Systems, Inc. (NASDAQ:VRNS) in its fourth quarter 2025 investor letter:
“Shares of Varonis Systems, Inc. (NASDAQ:VRNS), a cybersecurity vendor focused on classifying and protecting corporate data, detracted from performance during the quarter. The company’s core web-based Subscription as a Service (SaaS) business (76% of total revenues) was strong, growing over 100% year-over-year fueled by new customer wins and existing customers protecting more data stores. However, Varonis’s legacy on-premise commercial and Federal businesses experienced higher-than-expected churn towards the end of September, causing management to lower its overall forecasts for the year. Varonis announced that it would be sunsetting its on-premise software by the end of 2026. Management believes transitioning to single code base and revenue model will drive better overall security outcomes and lower total cost of ownership for its customers, while simplifying the sales motion and driving better efficiency for the company. While the remaining transition creates some uncertainty around 2026 revenue, we believe Varonis will emerge with accelerating growth, better profitability, and a more predictable model going forward.”
Varonis Systems, Inc. (NASDAQ:VRNS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 37 hedge fund portfolios held Varonis Systems, Inc. (NASDAQ:VRNS) at the end of the third quarter, the same as in the previous quarter. While we acknowledge the risk and potential of Varonis Systems, Inc. (NASDAQ:VRNS) 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 Varonis Systems, Inc. (NASDAQ:VRNS) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Varonis Systems, Inc. (NASDAQ:VRNS) and shared a list of software stocks with the highest upside potential. In addition, please check out our hedge fund investor letters Q4 2025 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.
