Baron Discovery Fund Expects Strong Growth and Margin Expansion for Mercury Systems (MRCY)

Baron Funds, an investment management company, released its “Baron Discovery Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. Year-to-date, the fund was up 10.75% (Institutional Shares), compared to a 11.65% return for the Russell 2000 Growth Index. The fund was up 2.85% in the third quarter, lagging behind the Index’s 12.19% return.  In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its third-quarter 2025 investor letter, Baron Discovery Fund highlighted stocks such as Mercury Systems, Inc. (NASDAQ:MRCY). Mercury Systems, Inc. (NASDAQ:MRCY), with a market capitalization of $4.648 billion, is a technology company that manufactures and sells components, products, modules, and subsystems for the aerospace and defense industries. The one-month return of Mercury Systems, Inc. (NASDAQ:MRCY) was -4.61%, and its shares gained 132.06% of their value over the last 52 weeks. On October 29, 2025, Mercury Systems, Inc. (NASDAQ:MRCY) stock closed at $77.44 per share.

Baron Discovery Fund stated the following regarding Mercury Systems, Inc. (NASDAQ:MRCY) in its third quarter 2025 investor letter:

"Mercury Systems, Inc. (NASDAQ:MRCY) designs, manufactures, and markets high performance embedded digital signal and image processing systems, mission systems, and software for Tier-1 defense contractors worldwide. Shares rose during the quarter following another strong earnings report, reflecting the material progress made since CEO Bill Ballhaus began restructuring the company in 2023. Mercury continues to deliver meaningful margin expansion and is benefiting from a generational increase in defense spending across the ecosystem, particularly among the nation’s flagship defense programs, for which it is serves as a mission-critical supplier of electronic components and solutions. We continue to expect accelerating growth and further margin expansion in the years ahead."

Mercury Systems, Inc. (NASDAQ:MRCY) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 28 hedge fund portfolios held Mercury Systems, Inc. (NASDAQ:MRCY) at the end of the second quarter, up from 23 in the previous quarter.  In the fiscal fourth quarter of 2025, Mercury Systems, Inc. (NASDAQ:MRCY) generated revenue of $273 million, up 9.9% year-over-year. While we acknowledge the potential of Mercury Systems, Inc. (NASDAQ:MRCY) 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 Mercury Systems, Inc. (NASDAQ:MRCY) and shared Conestoga Capital Advisors' views on the company. In addition, please check out our hedge fund investor letters Q3 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.