Episode summary
They Beat All US Stock Funds Since 2003 | Michael Baron on the AI Winners Investors Miss
Excess Returns
· · 1 hr 2 min · Hosts: Matt Zeigler, Justin Carbonneau · Guests: Michael Baron
Summary
Michael Baron argues that AI is creating a wide set of winners beyond the obvious megacap chip and platform names, and that Baron Capital is looking for businesses that can use AI rather than be displaced by it. He says the firm’s edge comes from investing in people, proprietary data, and competitive advantage, not from trying to predict the next quarter’s macro backdrop.
He frames software names like Shopify, Guidewire, FactSet, MSCI, and Gartner as examples of companies the market has punished too aggressively, despite strong underlying fundamentals and data assets that make them hard to replace. In his view, AI does not work in a vacuum and needs trusted data and workflow integration, which helps these businesses remain relevant.
Baron also makes the case that Tesla has evolved from a vehicle maker into a software, autonomy, and energy company, with optionality that the market still underestimates. He is similarly bullish on SpaceX, citing reusable rockets, Starlink’s economics, and the long-term possibility of AI infrastructure in space. Across all of it, he emphasizes long horizons, valuation discipline, and letting winners run while trimming when competitive advantage weakens.
Key takeaways
- Baron says AI should strengthen some software businesses, because proprietary data and workflow ownership make companies like Shopify, Guidewire, FactSet, MSCI, and Gartner harder to disintermediate.
- Michael Baron argues Tesla is now a software and energy platform as much as a car company, with autonomy creating a recurring revenue layer on top of vehicle sales.
- He expects SpaceX’s reusable-launch economics and Starlink’s lower-cost connectivity to expand the business far beyond launch services.
- Baron says the firm sells when competitive advantage deteriorates, not just because a stock has become large or expensive.
- He believes AI will make active management more important, because it democratizes data but not judgment.
Notable quotes
“AI is going to democratize data, but it's not going to democratize judgment”
“selling is hard. It's really hard. The second hardest thing to do is sell”
How the episode opens
You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use, where better questions lead to better decisions. I'm Matt Ziggler. Justin Carbono is in the co-host seat with me today.
And our guest, he's the co-president and portfolio manager at Baron Capital, 69 billion in client assets, and some incredible stories about investing in AI that go back more years than most of you out there, myself included, have been talking about it. We've been really excited to get him on the show to actually go through some of these cases and arguments. Welcome to Excess Returns, Michael Baron.
Well, great. Thank you for having me. — So, before we jumped into this and pressed the record button, you were talking about how giddy you are in general about some of the stuff you're writing and talking about. The last several investor letters, they've been must readads as far as I'm concerned. You've got a fascinating perspective on this. Why are you giddy today? What What does that mean to you?
There's so much going on. Um, exactly as you just said, you know, we we were talking a little bit, you know, off camerara beforehand and I'm just super excited about all the opportunities we're seeing in the market, both from an AI perspective. Obviously, we'll probably get into that later.
It it's on everyone's mind in terms of how to invest in AI, what what are the going to be the winners and the losers. Um, but I think it's much broader than that. It's not just singularly focused on one area of the economy, one trend.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai winners
- software disruption
- tesla autonomy
- spacex starlink
- long-term valuation
Companies and tickers mentioned
- TSLA
- SHOP
- GWRE
- FDS
- MSCI
- IT
- Baron Capital
- Tesla
- SpaceX
- Shopify
- Guidewire
- FactSet
- MSCI
- Gartner
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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