Baron Funds, an investment management company, released its “Baron Opportunity Fund” third quarter 2024 investor letter. A copy of the letter can be downloaded here. In the third quarter, the fund rose 4.04% (Institutional Shares), outperformed the Russell 3000 Growth Index, which gained 3.42%, and lagged the S&P 500 Index, which advanced 5.89%. In the first nine months ended 2024, the fund posted solid gains, rising 25.31% compared to a 24.00% return for the Russell 3000 Growth Index and beating the S&P 500 Index’s 22.08% gain. Due to a significant rotation away from large-cap Magnificent Seven stocks and toward value/cyclical and small-cap stocks, as well as generally positive economic data that supported the soft-landing narrative and the Federal Reserve’s long-awaited dovish pivot, U.S. stocks ended the quarter higher for the fourth consecutive quarter. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Baron Opportunity Fund highlighted stocks like GDS Holdings Limited (NASDAQ:GDS), in the third quarter 2024 investor letter. Headquartered in Shanghai, the People’s Republic of China, GDS Holdings Limited (NASDAQ:GDS) is a data center operator. The one-month return of GDS Holdings Limited (NASDAQ:GDS) was 1.42%, and its shares gained 102.25% of their value over the last 52 weeks. On October 24, 2024, GDS Holdings Limited (NASDAQ:GDS) stock closed at $20.69 per share with a market capitalization of $4.452 billion.
Baron Opportunity Fund stated the following regarding GDS Holdings Limited (NASDAQ:GDS) in its Q3 2024 investor letter:
“In the most recent quarter, we re-initiated a position in GDS Holdings Limited (NASDAQ:GDS). GDS is a pan-Asia data center operator with 1.5 gigawatts of power capacity across approximately 100 data centers in and around “tier one” cities in mainland China (GDS Holdings or GDSH), as well as 1.0 gigawatts of power capacity in its rapidly growing Asia ex-China business (GDS International or GDSI). GDS develops and leases data center space (on a power reservation basis) to the top global technology companies such as Alibaba, Tecent, ByteDance, Microsoft, Google, and Oracle under long-term, contracted arrangements. We recently met with CEO/founder William Huang and CFO Daniel Newman in our offices and believe the best days for the company are ahead of it due to durable secular tailwinds in cloud adoption (early innings in Asia, which are lagging the U.S. and rest of the world), continued growth in data, increasing demand from AI applications, and global constraints on power availability yielding sustained pricing power in light of low available supply amid continued strong demand. On a sum-of-the-parts basis, we see a path for the business to be worth $45 to $55 per share in two to three years versus approximately $20 at recent market price. For GDSI, based largely on contracted customer commitments, we see cash flow growing from less than $50 million today to over $500 million over the next three years, with the opportunity to ramp towards $1 billion a few years after that. We value GDSI at $15 per share over the near term and $25 per share over the next four to five years. Regarding GDSH, we believe the mainland China data center business is at the doorstep of a growth inflection and see cash flow growing from about $700 million today to $1 billion over the next three years based on lease-up of its available power capacity. We value GDSH at $30 to $40 per share over the near term and remain encouraged that there will be several catalysts to further enhance value (including a structure to place certain stabilized data center assets into a listed REIT vehicle).”
A top level executive looking out of a skyscraper window, symbolizing the strategic decisions taken by the company.
GDS Holdings Limited (NASDAQ:GDS) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held GDS Holdings Limited (NASDAQ:GDS) at the end of the second quarter which was 16 in the previous quarter. While we acknowledge the potential of GDS Holdings Limited (NASDAQ:GDS) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed GDS Holdings Limited (NASDAQ:GDS) and shared the list of best data center stocks to buy according to Jefferies, Citi and Wall Street Analysts. In addition, please check out our hedge fund investor letters Q3 2024 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.
