Baron Funds, an investment management company, released its “Baron Discovery Fund” second quarter 2024 investor letter. A copy of the letter can be downloaded here. In the second quarter, the fund (Institutional Shares) declined 7.78% underperforming the 2.92% return for the Russell 2000 Growth Index. The lion’s share of negative attribution and 6.52% of negative performance of the fund during the quarter were attributed to the ten worst-performing equities. The firm believes downward movements are more technically tied to macroeconomic issues and the trading environment and could quickly revert. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Baron Discovery Fund highlighted stocks like Couchbase, Inc. (NASDAQ:BASE) in its Q2 2024 investor letter. Couchbase, Inc. (NASDAQ:BASE) offers cloud database platform for enterprise applications. The one-month return of Couchbase, Inc. (NASDAQ:BASE) was -8.37%, and its shares gained 15.06% of their value over the last 52 weeks. On August 22, 2024, Couchbase, Inc. (NASDAQ:BASE) stock closed at $18.18 per share with a market capitalization of $914.634 million.
Baron Discovery Fund stated the following regarding Couchbase, Inc. (NASDAQ:BASE) in its Q2 2024 investor letter:
“We are huge believers in the practical uses of AI, and we have several investments in companies that adapt AI models to enhance their products and services. These include companies like GitLab Inc., SentinelOne, Inc., and Couchbase, Inc. (NASDAQ:BASE), which were among our top detractors at one point in the second quarter (GitLab and SentinelOne recovered significantly in the last week of the quarter). As of the second quarter at least, the market has just not been ready to reward AI companies beyond those providing “picks and shovels.” This led to all three of these companies trading at or near all-time low valuation levels during the quarter. Nevertheless, we believe that in the coming quarters the market will broaden its level of interest from AI hardware to “adaptive AI” investments like GitLab, SentinelOne, and Couchbase. In that scenario, all three of these stocks have significant upside potential.
One of our poorest performers in the quarter was Couchbase, which provides software allowing the creation of unstructured databases. Couchbase is enabling AI applications via new “vector” database modalities. Vector databases help to sort rapidly and efficiently through data. Couchbase raised its full-year revenue guidance and lowered its expected operating loss (we believe the company will be breakeven in 2025), yet shares dropped 30.6% in the quarter. The issue was that net new average recurring revenue was slightly lower than the Street expected. In our opinion, this was due to the timing of contract signings over the course of the year. We believe that full-year guidance is still intact, and the company has already indicated a particularly good start to the second quarter. Revenue growth should compound at 20% from 2024 to 2028, with free cash flow growing meaningfully. The stock could triple over this time as it continues to execute. Chaos equals opportunity.”
A technician installing hardware in a modern server room, highlighting the company’s focus on on-premise environments.
Couchbase, Inc. (NASDAQ:BASE) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 22 hedge fund portfolios held Couchbase, Inc. (NASDAQ:BASE) at the end of the second quarter which was 28 in the previous quarter. In the first quarter Couchbase, Inc. (NASDAQ:BASE) reported $51.3 million in revenues, up 25% year-over-year. While we acknowledge the potential of Couchbase, Inc. (NASDAQ:BASE) 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 Couchbase, Inc. (NASDAQ:BASE) and shared the list of stocks corporate insiders are selling. In addition, please check out our hedge fund investor letters Q2 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.
