Despite being the top individual detractor to absolute returns in the quarter, we believe the fundamentals for Intuitive Surgical remain solid. The healthcare sector is showing improving fundamentals and potential emerging tailwinds, which we find attractive. We have incrementally added net capital to Intuitive Surgical, reflecting our view that the sector's unique position, untethered to AI infrastructure capex, makes it valuable for portfolio construction. The recent multiple compression in healthcare stocks presents an opportunity for growth, and we see Intuitive Surgical as a key player in this recovery.

Despite short-term headwinds, we believe Intuitive Surgical, Inc. can continue to grow revenue at a mid-teens rate for many years and remain positive on the company's long-term growth outlook. Shares declined 13.7% after the company's first-quarter U.S. system placements came in below investor expectations. However, we view these concerns as short-term in nature, especially in light of the potential impact of Medicaid work requirements expected to take effect in 2027. We believe the company's fundamentals support sustained long-term revenue and profit growth well beyond current levels.

Despite a decline in shares, we remain constructive on Intuitive Surgical, Inc. (ISRG) due to its solid quarterly results, with revenue and Da Vinci procedure growth topping consensus estimates. The company is still early in the launch of Da Vinci 5, which we believe will drive further penetration into new hospitals and procedure categories, solidifying ISRG's lead in robotic-assisted surgery. With a 20-year lead on competitors and a strong competitive moat, we believe the current share price does not adequately reflect the longer-term cash flow generation potential of the business.

We used share price weakness as an opportunity to bolster our weightings in Intuitive Surgical. The company is well-positioned to benefit from the ongoing advancements in AI and healthcare technology, which we believe will drive significant growth. Intuitive Surgical's innovative robotic surgical systems have established a strong competitive moat, making it a leader in the surgical robotics market. As the healthcare sector increasingly adopts AI-driven solutions, we expect Intuitive Surgical to capitalize on this trend, enhancing its market share and profitability.

Despite recent headwinds, we believe Intuitive Surgical, Inc. can continue to grow revenue at a mid-teens rate for many years. The company sells robotic-assisted surgical systems, and while shares declined after first-quarter U.S. system placements came in below investor expectations, we remain positive on the company's long-term growth outlook. The health care sector is dynamic, and we think Intuitive is well-positioned to navigate these changes and capitalize on growth opportunities.

We believe artificial intelligence is beginning to proliferate from the digital world into the physical world across transportation, manufacturing, energy, and healthcare. These are markets that we estimate could represent, in aggregate, an addressable opportunity many multiples the size of the digital AI market. These new positions complement existing holdings such as Synopsys, Amphenol, NVIDIA, Intuitive Surgical, and Axon, which already give us exposure to this theme.

Intuitive Surgical (ISRG) has been the primary beneficiary of a powerful secular driver: the global shift from open surgery to minimally invasive procedures. The company has systematically converted complex procedures into minimally invasive ones, enhancing surgeon control and improving patient outcomes. With only 3.2 million procedures performed by Intuitive in 2025, a vast runway for growth remains. The business model generates high-margin, recurring revenue through a 'razor and razor blade' approach, establishing a formidable competitive advantage. The leadership's stability and disciplined capital allocation further support the belief that Intuitive will continue to capture an ever-growing share of the global surgical market.

Intuitive Surgical (-13.0%): Despite continued solid business results, management has adopted an intentionally cautious outlook for 2026. The somewhat more moderate projected growth rate is partially due to external factors, such as the latent risk of tariffs and possible reforms in the US health care system.

Intuitive Surgical, Inc. (ISRG) shares appreciated in the fourth quarter after the company delivered strong Q3 results highlighting continued procedure growth and accelerating system placements. Procedure volumes rose in the mid-teens globally, with notable strength in general surgery and urology, while recurring instrument and accessory revenue grew faster than expectations. Management also reported that the early rollout of its next-generation robotic platform was tracking ahead of schedule, with utilization metrics trending positively across beta sites. Improved supply chain conditions and lower logistics costs contributed to better operating margins. We view Intuitive Surgical as the clear leader in robotic-assisted surgery, with a deep installed base, high recurring revenue, and decades of clinical data supporting continued adoption. The company’s long runway for procedure penetration, next-generation platform upgrades, and expanding indications underpin durable revenue and earnings growth.

Intuitive Surgical, Inc. shares appreciated in the fourth quarter after the company delivered strong Q3 results highlighting continued procedure growth and accelerating system placements. Procedure volumes rose in the mid-teens globally, with notable strength in general surgery and urology, while recurring instrument and accessory revenue grew faster than expectations. Management also reported that the early rollout of its next-generation robotic platform was tracking ahead of schedule, with utilization metrics trending positively across beta sites. Improved supply chain conditions and lower logistics costs contributed to better operating margins. We view Intuitive Surgical as the clear leader in robotic-assisted surgery, with a deep installed base, high recurring revenue, and decades of clinical data supporting continued adoption.