Baron Technology Fund

Contributors

• NVIDIA Corporation is a fabless semiconductor mega cap company and global leader in gaming cards and accelerated computing hardware and software. Despite subdued demand for gaming cards due to an ongoing PC slowdown and inventory correction, shares of NVIDIA rose nearly 90% during the first quarter as a result of material developments in generative AI as evidenced by the release of ChatGPT and GPT-4. These technologies hold the promise of enabling significant productivity gains across domains from content creation, coding, and even biologic discovery. During its annual GTC conference in March, NVIDIA announced new products that expand its addressable market such as the L4 chip, which opens the opportunity for video processing, representing 80% of internet traffic. We continue to believe NVIDIA’s end-to-end AI platform and leading market share in gaming, data centers, and autonomous machines, along with the size of these markets, will enable the company to benefit from durable growth for years to come.
• Tesla, Inc. designs, manufactures, and sells electric vehicles, related software and components, and solar and energy storage products. Following a rapid decline at the end of 2022, the stock rebounded in the first quarter of 2023 on investor expectations that Tesla will continue to grow and maintain industry-leading margins despite a potential recession, COVID-related concerns, competition in China, and a price reduction. In addition, after devoting considerable time to reorganizing Twitter post-acquisition, CEO Elon Musk has re-established his commitment to Tesla, while a management presentation during its analyst day provided visibility into the broad quality of talent leading Tesla. We expect Tesla to continue to lead the electrification of the automotive and energy storage markets through its vertical integration, scale, and cost leadership. As long-term shareholders, we have witnessed Tesla increase deliveries from practically zero to over 1.3 million units while proving it can reduce costs and rapidly expand its product line and manufacturing footprint. We expect Tesla's next platform to have a similar impact on company results.
• Amazon.com, Inc. is the world’s largest retailer and cloud services provider. Shares were up in the quarter, driven by positive commentary and actions around cost discipline as well as the broader technology rally. We believe that Amazon is well positioned in the short-to-medium-term to meaningfully improve core North American retail profitability to pre-pandemic levels. Longer term, Amazon has substantially more room to grow in eCommerce, where it has less than 15% penetration in its total addressable market. Amazon also remains the clear leader in the vast and growing cloud infrastructure market, with large opportunities in application software, including enabling AI workloads.

Detractors

• WANdisco plc is an infrastructure software company that develops and sells distributed software solutions for data replication across disparate computing environments. Shares were impacted by an unexpected update on March 9 in which WANdisco disclosed “potentially fraudulent irregularities” in purchase orders, related revenue, and bookings related to a rogue senior sales employee and asked for shares to be suspended from trading. Pending further information and given that the company has temporarily suspended confidence in its recently reported revenues and 2023 guidance, we marked down shares by approximately 85%.
• ZoomInfo Technologies Inc. provides go-to-market business intelligence software. Shares detracted from performance after the company shared a weaker topline outlook driven by continued macro uncertainty. We have spoken with company management and conducted additional research to validate our longer-term thesis and believe relevant macroeconomic conditions are showing signs of improvement. We continue to believe ZoomInfo has the opportunity to become a much larger company over time as it grows into its $70 billion-plus total addressable market with the potential to expand into marketing and talent acquisition software and other adjacencies.
• Endava plc provides outsourced software development for business customers. Shares fell after the company reduced financial guidance to reflect slower bookings as macroeconomic uncertainty weighed on client decision-making in December. Nevertheless, the company reported solid quarterly results, with 30% revenue growth and 26% EPS growth. Management noted that bookings have improved in the first couple of months of 2023, and they expect annualized revenue growth to quickly return to greater than 20%. We remain investors because we believe Endava will continue gaining share in a large global market for IT services.