The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.

Baron Capital, an investment management company, released its Q2 2026 investor letter for the "Baron Focused Growth Fund". A copy of the letter can be downloaded here. In the second quarter, the Baron Focused Growth Fund achieved a 13.26% gain, still trailing the Russell 2500 Growth Index's 24.02% return. The underperformance was driven by ongoing concerns about AI's impact on portfolio businesses and underexposure to AI infrastructure. The IPO of SpaceX provided a boost, but overall, the Fund's companies are generating robust revenue growth and strengthening margins through enhanced client engagement and product offerings. Many stocks remain historically undervalued, and companies are beginning accelerated share repurchases, bolstering investor confidence. The Fund is perceived as compelling, benefiting from favorable market conditions and strong balance sheets, while inflation and interest rates are expected to remain stable. The Fund has outperformed its Benchmark over the past 3, 5, and 10 years, showing significant excess returns with lower market risk, attributed to a research-driven investment approach. The Fund maintains a commitment to long-term investing in growth-oriented businesses, utilizing a balanced portfolio to mitigate risk and potentially enhance returns. Please review the Fund's top five holdings to gain insights into their key selections for 2026.

In its Q2 2026 investor letter, Baron Focused Growth Fund highlighted FIGS, Inc. (NYSE:FIGS). FIGS, Inc. (NYSE:FIGS) is a direct-to-consumer healthcare apparel company known for its scrubwear for healthcare professionals. On August 19, 2026, FIGS, Inc. (NYSE:FIGS) closed at $14.49 per share, reflecting a market capitalization of $2.41 billion. FIGS, Inc. (NYSE:FIGS) posted a one‑month return of 56.82%, while its shares gained 109.09% over the past 52 weeks.

Baron Focused Growth Fund stated the following regarding FIGS, Inc. (NYSE:FIGS) in its Q2 2026 investor letter:

"FIGS, Inc. (NYSE:FIGS) designs and sells scrubwear for health care professionals through a digitally native, direct-to-consumer strategy. The stock detracted from performance as shares slipped due largely to investor positioning. Even so, the company reported a very strong first quarter. Revenue came in at $159.9 million, up 28%, well ahead of the company's guidance for low-20% growth and above consensus expectations. The results were broad-based. U.S. revenue grew 24% to $131.6 million, with strength across core offerings, new product launches, and promotional periods, while international revenue accelerated 50% to $28.3 million, with double-digit growth in every region. Active customers surpassed 3 million for the first time, up 12% year over year, with both new and repeat customers contributing. We continue to have conviction in the strength of FIGS' business model and the company's ability to gain market share in the attractive global health care apparel industry."

FIGS, Inc. (NYSE:FIGS) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held FIGS, Inc. (NYSE:FIGS) at the end of the first quarter, which was 33 in the previous quarter. While we acknowledge the potential of FIGS, Inc. (NYSE:FIGS) 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 FIGS, Inc. (NYSE:FIGS) and shared a list of stocks that beat expectations. In Q1 2026, FIGS, Inc. (NYSE:FIGS) stood out as a top contributor to Baron Focused Growth Fund's performance. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.

READ NEXT: 33 Stocks That Should Double in 3 Years and 15 Stocks That Will Make You Rich in 10 Years.

Disclosure: None. This article is originally published at Insider Monkey.