Baron Funds, an investment management company, released its “Baron Asset Fund” fourth quarter 2024 investor letter. A copy of the letter can be downloaded here. US equities ended the quarter higher primarily due to the market's strength following Donald Trump's election as president and the Republican majority in both houses of Congress. While Baron Asset Fund had a difficult fourth quarter, returning -(0.04)% (Institutional Shares) compared to the Russell Midcap Growth Index’s 8.14% return. The firm believes that the relative shortfall was caused by a number of circumstances that would only last temporarily. In addition, please check the fund’s top five holdings to know its best picks in 2024.

In its fourth quarter 2024 investor letter, Baron Asset Fund emphasized stocks such as AppLovin Corporation (NASDAQ:APP). AppLovin Corporation (NASDAQ:APP) develops a software-based platform for advertisers to enhance the marketing and monetization of their content. The one-month return of AppLovin Corporation (NASDAQ:APP) was 42.06%, and its shares gained 706.27% of their value over the last 52 weeks. On February 13, 2025, AppLovin Corporation (NASDAQ:APP) stock closed at $471.67 per share with a market capitalization of $160.388 billion.

Baron Asset Fund stated the following regarding AppLovin Corporation (NASDAQ:APP) in its Q4 2024 investor letter:

"Two software stocks that the Fund did not own, Palantir Technologies Inc. and AppLovin Corporation (NASDAQ:APP), each gained more than 100% and accounted for 52% of the Benchmark’s gain during the quarter. At year end 2024, Palantir was valued at approximately 200 times its expected 2024 earnings, while ANDREW PECK PORTFOLIO MANAGER Retail Shares: BARAX Institutional Shares: BARIX R6 Shares: BARUX AppLovin was valued at 80 times. The market cap of each exceeded $100 billion, and the two stocks represented nearly 8% of the Index. Neither company met our criteria for investment. The total impact on relative performance from Palantir and AppLovin was about 7 times higher than we have seen historically for two securities that are unique to the Benchmark, showing just how unparalleled the event was and something that we believe is unlikely to be repeated."

A close-up of a mobile device, showing an advertiser reaching out to a consumer via a software-based platform.

AppLovin Corporation (NASDAQ:APP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 51 hedge fund portfolios held AppLovin Corporation (NASDAQ:APP) at the end of the third quarter which was 54 in the previous quarter. AppLovin Corporation (NASDAQ:APP) reported strong fourth quarter with total revenue increasing 44% year over year to $1.37 billion and adjusted EBITDA increasing 78% to $848 million, achieving a 62% adjusted EBITDA margin. While we acknowledge the potential of AppLovin Corporation (NASDAQ:APP) 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 AppLovin Corporation (NASDAQ:APP) and shared the list of top AI stocks on Wall Street based on news and analyst ratings. 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.