Is Kratos Defense & Security Solutions (KTOS) Poised for an Accelerated Multi-Year Growth?

Baron Funds, an investment management company, released its “Baron Discovery Fund” second-quarter 2025 investor letter. A copy of the letter can be downloaded here. In the second quarter, the fund was up 14.76% (Institutional Shares), outperforming the 11.97% return for the Russell 2000 Growth Index. The fund was up 7.68% year-to-date, well ahead of the Index’s -0.48% return.  In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its second-quarter 2025 investor letter, Baron Discovery Fund highlighted stocks such as Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS). Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a technology company that offers mission-critical products, services, and solutions. The one-month return of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) was 31.91%, and its shares gained 153.28% of their value over the last 52 weeks. On July 29, 2025, Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) stock closed at $57.09 per share, with a market capitalization of $9.613 billion.

Baron Discovery Fund stated the following regarding Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) in its second quarter 2025 investor letter:

"Leading defense technology provider Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) contributed to performance during the quarter amid growing momentum across nearly the entire business. We believe Kratos is well positioned for accelerated multi-year growth, as prior investments in high-growth areas of defense—such as hypersonic technology, drone engines, small missile engines, space, microwave electronics, and unmanned systems—are translating into larger contract awards. Demand is being driven by increased funding from the U.S. Department of Defense and other global militaries. In our view, the current operating environment has never been better, and few companies are as well equipped as Kratos to deliver the advanced solutions required for modern warfare."

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 17 hedge fund portfolios held Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) at the end of the first quarter, compared to 21 in the fourth quarter. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) reported revenue of $302.6 million in the first quarter, surpassing its guidance range. While we acknowledge the potential of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) and shared the list of best performing mid cap stocks so far in 2025. In addition, please check out our hedge fund investor letters Q2 2025 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.