What Makes Guidewire Software (GWRE) a Lucrative Investment?

Baron Funds, an investment management firm, released its “Focused Growth Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. Q1 was a difficult start to the year. The fund declined 7.95% (Institutional Shares) in the quarter, compared to the Russell 2500 Growth Index’s (the Benchmark) 10.80% return. Please spare some time to check the fund’s top 5 holdings to know more about their top bets for 2025.

In its first-quarter 2025 investor letter, Baron Focused Growth Fund highlighted stocks such as Guidewire Software, Inc. (NYSE:GWRE). Guidewire Software, Inc. (NYSE:GWRE) offers a platform for property and casualty (P&C) insurance companies. The one-month return of Guidewire Software, Inc. (NYSE:GWRE) was 13.63%, and its shares gained 82.07% of their value over the last 52 weeks. On May 7, 2025, Guidewire Software, Inc. (NYSE:GWRE) stock closed at $213.15 per share with a market capitalization of $17.88 billion.

Baron Focused Growth Fund stated the following regarding Guidewire Software, Inc. (NYSE:GWRE) in its Q1 2025 investor letter:

"Shares of property and casualty (P&C) insurance software vendor Guidewire Software, Inc. (NYSE:GWRE) contributed to performance in the quarter. After a multi-year period, we believe Guidewire’s cloud transition is substantially over, and cloud will be the sole path forward, with annual recurring revenue (ARR) benefiting from new customer wins and migrations of the existing customer base to InsuranceSuite Cloud. We also expect the company to shift R&D resources to product development from infrastructure investment, which will help drive cross-sales into its sticky installed base and potentially accelerate ARR over time. We are also encouraged by Guidewire’s subscription-based gross margin expansion, which improved by more than 1,000 basis points in its most recently reported quarter. We believe Guidewire will be the critical software vendor for the global P&C insurance industry, capturing 30% to 50% of its $15 billion to $30 billion total addressable market and generating margins above 40%."

Guidewire Software, Inc. (NYSE:GWRE) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 60 hedge fund portfolios held Guidewire Software, Inc. (NYSE:GWRE) at the end of the fourth quarter which was 51 in the previous quarter. Guidewire Software, Inc. (NYSE:GWRE) generated revenue of $289 million in the second quarter of fiscal 2025, marking a 20% increase from last year's comparable quarter. While we acknowledge the potential of Guidewire Software, Inc. (NYSE:GWRE) 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 covered Guidewire Software, Inc. (NYSE:GWRE) and shared Alger Small Cap Focus Fund's views on the company. In addition, please check out our hedge fund investor letters Q1 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.