Multiple Compression Pulls Back Shopify (SHOP) in Q2

Multiple Compression Pulls Back Shopify (SHOP) in Q2

Tue, September 1, 2026 at 4:25 PM GMT+3 3 min read

Baron Capital, an investment management company, released its second-quarter 2026 investor letter for its "Baron Fifth Avenue Growth Fund". The letter can be downloaded here. The fund achieved a strong quarter, gaining 24.6% (Institutional Shares), outperforming the Russell 1000 Growth Index (16.7%) and the S&P 500 (15.2%). Year to date, it's up 11.7%, surpassing its benchmarks. The first half of 2026 mirrored the previous year, with a 10.4% drawdown in Q1 due to geopolitical tensions, similar to last year's tariff-related decline. However, the fund rebounded with a 24.6% gain in Q2 after a cease-fire and declining oil prices. Stock selection drove the outperformance, contributing 940bps, while sector allocation detracted 152bps. In a volatile market, the firm remains focused on identifying high-quality, competitively advantaged companies and is optimistic about long-term prospects, investing when prices align with intrinsic values. Also, check the fund's top five holdings to see its best picks in 2026.

In its second-quarter 2026 investor letter, Baron Fifth Avenue Growth Fund highlighted Shopify Inc. (NASDAQ:SHOP). Shopify Inc. (NASDAQ:SHOP), a Canada-based e-commerce technology company that provides a cloud-based platform for individuals and companies to create and manage their operations, detracted from performance in the quarter. On August 31, 2026, Shopify Inc. (NASDAQ:SHOP) closed at $147.37 per share. Over the past month, Shopify Inc. (NASDAQ:SHOP) returned 19.52%, but its shares are up 5.99% over the past year. Shopify Inc. (NASDAQ:SHOP) has a market capitalization of $189.59 billion, and its stock has traded within a 52-week range of $94.00 to $182.19.

Baron Fifth Avenue Growth Fund stated the following regarding Shopify Inc. (NASDAQ:SHOP) in its Q2 2026 investor letter:

"Shopify Inc. (NASDAQ:SHOP), a leading global commerce platform serving merchants across online and offline channels, detracted from performance in the second quarter with the stock down 3.7%. The decline was driven by multiple compression (its P/E was down 8.5%11) rather than any deterioration in the underlying business or fundamental outlook. Shopify continued to post healthy growth in gross merchandise volume and revenue, which were up 30% and 32% year-on-year, respectively. Instead, the pressure reflected investor concerns about the company's long-term positioning in a future state of e-commerce that may rely more heavily on AI-driven applications than traditional websites. We view those concerns as misplaced and see Shopify as an AI winner. Two decades of proprietary data across millions of merchants provide Shopify with a strong foundation for AI tools that improve merchant outcomes. Recent product releases also embed the platform more deeply within the emerging agentic commerce ecosystem while creating new monetization opportunities. We continue to believe that Shopify is the category-defining platform for modern commerce, benefiting from durable secular growth in digital retail, an expanding suite of merchant solutions, improving free cash flow, and a widening competitive moat."

Shopify Inc. (NASDAQ:SHOP) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 82 hedge fund portfolios held Shopify Inc. (NASDAQ:SHOP) at the end of the second quarter, which was 88 in the previous quarter. While we acknowledge the potential of Shopify Inc. (NASDAQ:SHOP) 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 discussed Shopify Inc. (NASDAQ:SHOP) and noted that it gained attention after Jim Cramer praised its AI-driven business formation initiatives. In addition, please check out our hedge fund investor letters Q2 2026 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.