Baron Capital, an investment management company, released its Q1 2026 investor letter for the “Baron Durable Advantage Fund”. A copy of the letter can be downloaded here. In Q1 2026, Baron Durable Advantage Fund (the Fund) declined 9.0% (Institutional Shares) compared to the 4.3% decline for the S&P 500 Index (the Index), the Fund’s benchmark. The Fund started 2026 with optimism, having posted three consecutive years of strong market returns. However, heightened geopolitical tensions and the subsequent war with Iran drove up oil prices, adversely affecting market dynamics. Two-thirds of the Fund’s relative underperformance was due to sector allocation, with the remaining third attributable to poor stock selection. The letter highlighted durable structural competitive moats. As a long-only investor, the Fund aims to achieve an annualized alpha of 100 to 200 basis points, net of fees, while minimizing permanent capital loss. In addition, please check the Fund’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Baron Durable Advantage Fund highlighted Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) as a leading performance contributor. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s leading manufacturer of integrated circuits and other semiconductor devices. On May 12, 2026, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) closed at $397.28 per share. One-month return of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was 5.91%, and its shares gained 103.98% over the past 52 weeks. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) has a market capitalization of $2.06 trillion.
Baron Durable Advantage Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q1 2026 investor letter:
“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) shares rose 11.5% during the first quarter, as revenue growth of 20.5% (25.5% in USD) exceeded expectations due to surging demand for AI chips. TSMC dominates the advanced semiconductor foundry market, controlling over 90% share of cutting-edge sub-7 nm nodes that power AI servers, flagship smartphones, and autonomous vehicles. The company benefits from a virtuous cycle in which its massive scale and profitability generate the capital necessary to fund industry leading R&D and capex, in turn widening its technological moat and reinforcing its pricing power. As the ultimate picks-and shovels provider of the AI era, TSMC remains insulated from the competitive dynamics of the AI chip design ecosystem. Whether hyperscalers develop custom accelerators or deploy merchant GPUs from companies like NVIDIA and AMD, nearly all advanced AI accelerators are manufactured exclusively at TSMC’s 3nm and 5nm nodes. We believe TSMC will deliver 20% earnings growth over the next several years, supported by secular AI-driven demand for leading-edge manufacturing capacity.”
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) ranks 6th on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 224 hedge fund portfolios held Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) at the end of the fourth quarter, up from 194 in the previous quarter. While we acknowledge the potential of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) 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 Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and shared the list of best AI stocks to buy for 2026 according to billionaire David Tepper. In addition, please check out our hedge fund investor letters Q1 2026 page for more investor letters from hedge funds and other leading investors.
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