Jordan Wong

Alright. Hi, everyone. Welcome back to Tech Talk. My name is Jordan Wong, a portfolio analyst with our Investment Products Advisory Group. And as always, I'm joined by Marcello Montanari, managing director and senior portfolio manager on the RBC GAM North American Equity Team, and Rob Cavallo, senior portfolio manager on the North American Equity Team.

Now if you're tuning in for the first time, the three of us get together each month to talk all things technology and health care related as two of the most innovative sectors within the S&P 500.

Marcello and Rob manage over five billion dollars in assets across the firm, and these assets are spread across a number of growth-oriented strategies. Their two flagship funds, though, the ones that you're likely most familiar with would be the RBC Life Science and Technology Fund and the RBC Global Technology Fund.

Great episode coming up today. I want to talk a little bit about AI leadership. Of course, there's been a lot of price action and news around Tesla, Elon Musk, and Donald Trump last week, we’ll touch on that a little bit. We've seen some healthy rebounds and some notable tech names like Micron, which we'll touch on as well. And if we do have a bit of time, we'll maybe jump into the healthcare small/mid-cap biopharmaceutical names that are in the portfolio as well.

Marcello and Rob, thanks for joining me again this month.

Marcello Montanari

Thanks for having us.

Jordan Wong

Absolutely.

Alright, so maybe we’ll start off and talk a bit about AI. Obviously, not a new concept, at this point.

But I think, you know, over the last little while, there's been a lot of talk around the leadership within AI and who's going to come out on top and which of these notable, sort of, bellwether tech stocks might actually lag behind.

And now, Marcello, you've been obviously following this very closely. And there's maybe been a bit of some data points that are maybe suggesting a bit of a reordering between some of these bellwether names like Google, Meta, and OpenAI. We're sort of pushing the lead both in current and future AI models.

Maybe just talk to us about what you're seeing take place and what you've, kind of, uncovered there. And is there at all, sort of, a changing view on who might emerge as the top player within the space?

Marcello Montanari

Well, thanks, Jordan.

Well, we're still kind of early in this game, but, you know, if we go back, so we're going to completely, you know, we're not going to talk about search.

Like, we've been talking about search and the risks around search for quite a while, and we know and that's why the stock is trading at the valuation it is, around 17 times next year. It wouldn't be there if we weren't somewhat concerned about the search business.

So, in terms of AI, when OpenAI and Microsoft got together and released, like, the Bing OpenAI product onto the face of the planet in February of 2023, you know, Google's caught kind of flat footed.

And, you know, that was followed up with a whole bunch of, kind of, high profile presentations that just kind of really fell flat. And as a result, Google looked like the guys who couldn't shoot straight in AI, despite the fact that they had declared themselves to be the AI first company back in 2015 when they acquired, was it DeepSeek, in the U.K.

So, they've just kind of been viewed as the guys who can't shoot straight and couldn't do anything right, you know? But over time, the disaster that was barred turned into Gemini, which was, like, not great. And then that was Gemini 1, and then Gemini 1 turned into Gemini 2, and then most recently, we've got Gemini 2.5.

And all of a sudden, the narrative around this, amongst the developers seems to have changed quite a bit. And it's not just Gemini 2.5, it's also the Veo, image generating model, which is getting rave reviews.

And so, like, I follow a lot of developers on Twitter, and I have, you know, I’ve kind of got this ecosystem of developers that I follow and they all kind of follow each other. And I've just kind of been watching how the opinion has been changing about Google in this space to the point where, one of the developers, basically hosted a survey on his site asking people who they thought was the best position for AI going forward.

And if we would have gone back a year ago, and he didn't do this, but I would suspect that it would have been OpenAI, Meta, Google, and then Apple, in that order. And his most recent results, he had basically 1,300 people responding to that, and I would suspect that a lot of them were developers.

They basically completely reordered this, and Google was at the top, followed by OpenAI, and then Meta had fallen quite a bit, and Apple kind of, is still kind of at the bottom. So, there's kind of been this reordering amongst the developer community in terms of where this, you know, who's the best physician going forward.

On top of that, just from anecdotal discussions with people, more and more people are saying, hey, the AI overviews, when you go into Google search and stuff, the results are actually quite good. So, Google's getting their act together and that has not fallen on deaf ears with the developer community.

And now it seems to be that the investment community, which, like I said, just viewed the company as being the guys who couldn't shoot straight, they're now kind of seemingly coming on board and noticing it as well.

At the same time, you know, we've seen some things go not so great at Meta. So, their Llama model that they just released did not achieve the benchmarks that they were hoping.

Oh, by the way, the Gemini 2.5 - when it's measured on the test that most of these language models are judged against - has basically shot up to the top of the leaderboard across all sorts of different metrics. So that's something that's obviously aided this improving sentiment.

Meta is on the opposite side of this. Llama has actually not achieved the results that they had expected. And then their next big model, Behemoth, which was supposed to come out, like, imminently has been kind of pushed back. So, something's not going right at Llama. On top of that, they've had a bunch of high-profile departures in their AI department which has led to Mark Zuckerberg basically turning around and saying, like, he's doubling down on this, and he's basically, I think, he's taken the lead in running the AI implementation at Meta going forward.

And then Apple, we kind of know what's happened at Siri and stuff like that. It's kind of old news. So, they're still kind of at the bottom. Even though they're really well positioned in terms of, you know, having the interface that people could presumably use more than any other interface to access AI features and so on and so forth.

So, there's been a bit of a reordering there, and Google has definitely kind of, been rising throughout this. And that's basically the thing that I've been noticing.

Oh, and another thing that we did, we actually put deep research, we gave it a project to try to figure out, you know, who are the 100 top researchers in AI. And it was quite an extensive, process. But anyway, Google showed up really strong there with about 28 of the top 100 researchers who work at Google, and then the next largest was, I believe, OpenAI that's seven or eight researchers, and the top school was Stanford.

Anyway, I'll leave it there. So, things are looking better for Google on the AI front after, like, some serious missteps.

Jordan Wong

I just want to, maybe, actually stay on that last point, Marcello. We were looking at that a few weeks ago. And so, if I understand this correctly, you just basically had Chat GPT filter through, look up the top researchers, where they work, what, if they work for a company or, what schools they would lecture at.

Right? And so that's when you talk about, a third or, the majority of these developers working at Google, that sort of come from that study,

Marcello Montanari

Yeah.

Jordan Wong

or I guess just looking at who the top lines are and where they work and where they lecture, which I think is a very interesting feat in and of itself. I mean, I would assume if you were to do this without a Chat GPT, this might be something that might not even be worth trying to research in the first place.

Marcello Montanari

Yeah, I mean that gets us a whole different question.

But yeah, it was a pretty extensive prompt. Basically, the research project went into all the research papers, what are their, you know, what are the most important by the number of citations from other papers, and looked at the patent records, whose names are appearing on patents, whose are on research papers, which ones are the most cited and cross cited and stuff like that. So, there's a whole bunch of elements like that. And when the list came out, it was like, I recognized a lot of the names on it because there are names that just keep coming up in the readings on the topic. So, it was quite interesting.

And it's something that if someone had to, as one of our new members of the team here pointed out, he said, you know, if he did this as an intern, this would have been a summer project.

Jordan Wong

Sure.

Marcello Montanari

So, this did it in about, I don't know, 30 to 45 minutes.

Just to be clear, it did not bring up many researchers from China. So, the training data for this was omitting a large part of the world. So, this was the most important Western based researchers.

And Jeffrey Hinton at UofT is, like, number one, Yoshua Bengio in Montreal is number two, and then Yann LeCun. And those are actually the three guys that are viewed as being the godfathers, the three godfathers of AI, and they showed up at the top as would be expected.

Jordan Wong

Perfect.

Alright, maybe switch gears a little bit here, Rob.
Maybe we can talk a bit about Micron. You know, Micron has been a pretty sizable position across your tech focused funds. Over the last month or so, we've seen a pretty impressive rebound in the stock. And what makes it even maybe more impressive is just relative to the tech sector, so it’s actually been performing quite well lately.

So maybe just talk to us a bit about what's kind of behind this big rebound in Micron? What's going on with the stock right now?

Rob Cavallo

Yeah. For sure. So, I think, you know, Micron is very much a bellwether for the cyclical trade within tech and, like, even within the semis group where, you know, it resides-

Jordan Wong

Maybe we could start off actually just giving us an overview on what Micron does.

Rob Cavallo

Sorry. Yeah, yeah, no, no, step back, for sure.

So, Micron is one of the three largest players globally in making memory chips in the semiconductor chain. So basically, anything whether it's AI, non-AI related, memory is obviously a huge component in the whole electronics industry, and they are our specialist in both flash storage, so like things that are safe for a short period of time and things in the D-RAM side which is kind of safe for a longer period of time. But basically, think of them as a memory player.

Because of the memory business and, you know, who they are, they're very extra cyclical versus, like, as I mentioned, even the semis group. So part of it is, you know, very much a snapshot of how the cyclical trade is just recovered broadly.

However, statistically, just to provide and throw some numbers at you, from Liberation Day, April 2 to April 7, the stock in that one week fell 23%. Since then, it's recovered 71% off that low.

And it's not just a relative trade. It's outperformed the semiconductor index, which is up just over 40%, and the S&P up at 20%. Part of it, as I mentioned, is just the higher beta focus of the market over this time period. But also, a lot of data points have actually just gone very much in Micron's favor, surprisingly. Pricing is obviously a very important component when you're in a commodity-like business like memory, and pricing has been surprisingly very strong and indications going forward, for the rest of the year, both components of their memory business look exceptionally good.

You've seen some potentially pull forward on the PC business and, you know, computers are obviously a big memory user. So maybe some pull for risk there, but PCs look good. The handset business, iPhone, and other stabilized finally. Overall server demand has been exceptional. But again, AI demand and the comfort that the market's gone around, the sustainability of that trade into '26 is important because memory is a huge component of these chips.

There's you know, right now, you're basically stacking, like, eight memory chips on essentially every AI, every Nvidia chip. And that's going to be going to 12 chips next year and it's just expanding, and Micron has done very well in terms of securing their own market share at Nvidia and elsewhere. And they've prequalified for the next generation of the product coming out in 2026.

So, it's just been, you know, one thing after another fundamentally has worked really well in addition to a cyclical risk on market and it's really carried Micron, to, as I mentioned, up over 70% in in just over two months. Quite the recovery.

Jordan Wong

Yeah. Excellent. Well, why don't we pivot a little bit here?

And, I mean, I hate to do this to you, Marcello, I know, talking about Tesla isn't your favorite discussion topic. But just given, you know, the news we saw last week, obviously, I don't think that has much to do with the stock, but we did see some price action.

And so maybe this just creates a bit of an opportunity for us to circle back, and maybe you could just give us your broad thoughts on the name.

It's obviously a stock that is not held within your portfolios, and I think they are very compelling reasons as to why. So maybe you can just kind of give us, your high-level overview on why this has been, you know, quite a notable omission from your portfolios, for the last little while.

Marcello Montanari

Okay. Well, thanks.

It's kind of hard to, you know, forget about the drama that happened last week because I think it does have an impact on the business, overall.

But, just to level set, our issue from the beginning on this name has been that the valuation - this is effectively an automobile company - and the valuation, it has a technology multiple. And from my history of managing technology portfolios, it's very rare for a technology company to maintain a very high multiple when it is actually losing share across its markets.

And Tesla continues to lose share across pretty much all of its markets. That's being reflected in revisions and market expectations. The Cybertruck kind of looks like a flop as far as I can tell. There doesn't seem to be a new model on the horizon and the company's profitability is primarily driven by the EV credits it gets from the government, the US government. And even Canada was giving them out as well. On top of, like, it gets, you know, it makes money on its cash balances in the bank and stuff. But if you remove those, the company is just basically breakeven and not terribly profitable. So, the Big Beautiful Bill, I hate that name, but it is basically eliminating these credits. So that's not a good thing for Tesla.

And on top of that, I think that’s what drove some of the drama from last week. You know, I think Elon's saying it didn't, but I think you kind of have to think it played a role in that. So, that's kind of, like, where we stand. It's a tough setup.

And now every time you listen to Elon, you know, he starts off right away with talking about robotics. And, you know, robotaxi is basically, it's a robot, but even he's got humanoid robots always around him. And he's kind of trying to reframe the story. And that's where we come into the robotaxi launch in Austin, which is supposed to start this month. It looks like it's going to be a soft launch rather than something kind of more full out like Waymo might do. And so, to my knowledge, it seems that not all of the data that that Tesla should have submitted to the authorities in Austin has been submitted, and that kind of makes you wonder why they haven't done that. Hence, maybe that's why it's a soft launch.

So, I just think that, you know, Waymo and Tesla are the technology underpinning, you know, the driverless car is very different. Waymo uses LiDAR, radar, and cameras, and full self-drive, Tesla just relies on cameras. And what we've seen is that there are issues just relying on cameras.

So, I would just be worried as a Tesla shareholder that if there's any injuries in Austin in the first few weeks, you know, I would suspect there'd be pressure on, you know, the local government to kind of look at this closely, especially if not all the information that they were expecting had been submitted. So that's kind of where we stand at the moment.

Jordan Wong

Perfect. No, that’s really helpful, thank you.

Maybe just with our last few minutes here, Rob, we can turn to, some of that small/mid-cap, biotech space. So InsMed is a name that, has been in the portfolio or been in your funds for a little bit, and you've talked about InsMed in the past.

Although we, not that long ago, a few days ago, we did see some big price action within that name. And so maybe just talk to us about what kind of went on there and how you're thinking about the stock now moving forward.

Robert Cavallo

For sure. And, you know, as we speak, the stock is up, just about 40% over the last two days. What happened is they there's a second program. So, their initial program last year was for a type of lung respiratory condition. Went well. The drug is going to be, on all likelihood, approved this August.

What the story was looking for was the next leg of the stool, and there wasn't a lot of necessarily faith that this trial was going to go well. It was for a condition called pulmonary hypertension, again, a lung condition. These patients, you know, terrible condition, trouble walking, and maintaining any stamina.

Essentially, they crushed the data. It looks like this could be a best-in-class drug as well, and they now could have a first in-class, best in class drug that's going to get approved in August, and now a second, potentially best-in-class drug that could be approved. I mean, it's still going to be a little ways away, but within the next, you know, one to two years.

All of a sudden, this is a business that's gone from a billion-dollar type of revenue potential eighteen months ago to now a business that might be a $10 billion revenue potential going forward. With, you know, a lot of revenue potential of that in the next five years, which, you know, from here it's either, it becomes an S&P 500 independent $10 billion revenue type company, or it's going to be at the top of a lot of M&A baskets.

So, we still think there's a lot of optionality here. Even in the lead indication, there's probably upside to kind of the numbers that the street is expecting. So, this could be $10 billion plus. There's not a lot of mid-cap $10 billion plus revenue potential companies out there, and we just feel pretty good still with our thesis to continue to support this name, you know, even at these at these price and valuation levels.

Jordan Wong

That’s great.
Thank you so much for keeping us up to speed on all this stuff. Maybe we'll just wrap the episode up here. We've got about twenty or so minutes of an episode, so usually a good time to cut things off. We'll touch base again next month and pick the conversation back up.

Gentlemen, as always, want to thank you for your time, and for your insights, and thank you to everyone who tuned in.

If you are interested in learning more about funds like the RBC Life Science and Technology Fund and the RBC Global Technology Fund, I do encourage you to visit our website or reach out to your RBC GAM representative. Thanks again everyone for your time, and we'll be back next month.

Robert Cavallo

Thank you.

Marcello Montanari

Thanks.

Jordan Wong

Alright. Thank you, guys.