Baron Capital, an investment management company, released its Q1 2026 investor letter for the “Baron Discovery Fund”. A copy of the letter can be downloaded here. It was a difficult quarter for Baron Discovery Fund, both on an absolute and relative basis. The Fund declined 10.65% (Institutional Shares) in the quarter, compared to the Russell 2000 Growth Index’s return of -2.81%. The underperformance of 7.88% was primarily attributed to sectors such as Information Technology, Consumer Discretionary, Health Care, and Industrials, along with a lack of exposure to Energy. The Fund sees the current SaaS-pocalypse as an opportunity to invest in compelling prospects among software companies that possess robust and sustainable competitive advantages. 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 Discovery Fund highlighted stocks like Forgent Power Solutions, Inc. (NYSE:FPS). Forgent Power Solutions, Inc. (NYSE:FPS) is a leading industrial company that designs and manufactures electrical distribution equipment used in data centers, the power grid, and energy-intensive industrial facilities. On May 6, 2026, Forgent Power Solutions, Inc. (NYSE:FPS) closed at $42.68 per share. One-month return of Forgent Power Solutions, Inc. (NYSE:FPS) was 36.31%, and its shares gained 47.17% over the past three months. Forgent Power Solutions, Inc. (NYSE:FPS) has a market capitalization of $12.99 billion.
Baron Discovery Fund stated the following regarding Forgent Power Solutions, Inc. (NYSE:FPS) in its Q1 2026 investor letter:
“Forgent Power Solutions, Inc. (NYSE:FPS) is a leading manufacturer of electrical distribution equipment used in data centers, the power grid, and energy-intensive industrial applications. Forgent is a low- and medium-voltage equipment specialist and focuses on custom, “engineered-to-order” products (90% or more of revenue) whereas larger competitors in the industry generally focus more on higher voltage and standard products. Forgent differentiates itself from competitors by engaging deeply with customers in the design phase and then offering custom products in shorter lead times than the standard products sold by competitors.
The company has nearly completed a manufacturing footprint investment which will support $5 billion in revenue, giving it one of the largest state-of-the-art manufacturing footprints in the industry. Plus, it has very good visibility with about $3 billion in annualized orders, with a $1.5 billion current backlog. Electrical equipment, especially power transformers, remains a key bottleneck in the broader data center infrastructure build, and Forgent’s capacity planning and manufacturing efficiency are uniquely positioned to take advantage of this supply/demand mismatch. Despite inefficiencies from excess capacity, Forgent already has near best-in-class adjusted cash flow margins, which we expect to continue to expand as the company drives more volume over its large manufacturing footprint. To date, most of its data center business has focused on colocators and neoclouds, with very large opportunities to engage with and support larger hyperscale customers going forward. We believe Forgent can grow its revenues to over $5 billion in the next five years (from $296 million in 2025 and an expected $1.3 billion in 2026) supported by continued robust grid and data center capital expenditure as well as share gains from competitors in the market.”
Forgent Power Solutions, Inc. (NYSE:FPS) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. While we acknowledge the risk and potential of Forgent Power Solutions, Inc. (NYSE:FPS) 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 Forgent Power Solutions, Inc. (NYSE:FPS) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Forgent Power Solutions, Inc. (NYSE:FPS) and shared the list of best stocks to buy in a rising market according to Wall Street analysts. 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.
