With a 51.8% return and cutting-edge robotic systems, Intuitive Surgical might just be the next big thing in healthcare tech. More from EasyAssetManagement's stock report.
Summary:
The role of technology and robotics in the medical field has been a topic of extensive discussion, and the integration of AI and robotics into healthcare appears inevitable and is unfolding rapidly.
Today, Intuitive Surgical is leading the way with cutting-edge robotic surgical equipment that assists surgeons in achieving better patient outcomes. This Nasdaq-listed company has established itself as an innovator in surgical technology and robotics, delivering impressive returns for investors over the past year.
At EasyAssetManagement, we follow a thematically driven investment approach, spotting companies with significant growth momentum.
Intuitive Surgical is a prime example, fitting neatly into three noteworthy themes: robotics, artificial intelligence (AI), and health technology, all of which we believe have strong tailwinds for growth. Intuitive Surgical seems to be an almost exact manifestation of the statement made by Jensen Huang, CEO of NVIDIA (NVDA), “Everything that moves will be autonomous someday, whether partially or fully. Breakthroughs in AI have made all kinds of robots possible, and we are working with companies around the world to build these amazing machines.”
Revolutionary Surgical Systems
Intuitive provides advanced robotic systems designed to assist surgeons in multiple kinds of minimally invasive surgeries. The company’s product suite, though evocative of a scene from The Matrix, delivers tangible health benefits.
These surgical systems integrate software, hardware, and optics to enable surgeons to perform robotically aided surgery from a remote console. The range of the products Intuitive provides can be grouped into five categories: surgical systems, instruments and accessories, stapling, energy solutions, and vision systems (e.g., Firefly Fluorescence imaging and endoscopes).
As a result of Intuitive’s systems, surgeons are able to work more comfortably, make smaller incisions, and achieve greater precision—enhancing patient outcomes. Smaller incisions lead to fewer complications and faster recovery times. Additionally, the system’s stability is a game-changer, allowing for increased precision for even the steadiest of hands.
The use of Intuitive systems is global and has even reached hospitals in South Africa, both private and public. This expansion highlights the widespread recognition of the technology’s value in improving surgical outcomes. Former Netcare CEO Richard Friedland encapsulated this sentiment by stating that technology is not “merely nice to have in healthcare. Where there is a compelling benefit for patients, it becomes imperative.”
How the Business Operates:
Intuitive Surgical generates revenue through the sale and leasing of its robotic surgical systems. Additionally, the company benefits from recurring revenue streams, including maintenance services and the replacement of components after each surgery. As the volume of procedures increases, so does the demand for leases, maintenance, and consumable components, creating a robust and resilient business model.
Furthermore, Intuitive Surgical refines its robotic systems through insights gained from completed surgeries, much like Tesla enhances its autonomous driving capabilities by gathering real-world driving data. This iterative process drives advancements in both the complexity of procedures the systems can perform and their overall precision.
Dissecting the Financial Performance:
Intuitive Surgical delivered impressive financial results in Q4 2024, with the share achieving a 51.8% return over last year. Quarterly revenues exceeded analyst expectations, reaching $2.41 billion, marking a 25% year-over-year (YoY) increase. System placements over the same period totalled 493 units, while procedural volumes rose by 18% YoY.
Revenue for the latest quarter included $1.41 billion from instruments and accessories (+23% YoY), driven by the strong adoption of Da Vinci and Ion procedures while systems revenue increased by 36% to $655 million. Looking ahead, Intuitive projects procedural growth of 13-16% for 2025, though this guidance may be considered conservative given current trends.
System placements showed a healthy balance of purchases and leases, with 55% directly purchased and 45% leased, including 130 trade-ins—demonstrating robust demand for Da Vinci 5 system upgrades. Recurring revenue from servicing, instruments, and accessories provides a stable income stream, protecting the company from potential fluctuations in new system placements
With sustained double-digit revenue growth over several quarters and consistently strong gross and net margins, Intuitive Surgical is well-positioned for continued success in the surgical robotics market. Although some industry peers achieve slightly higher net margins, Intuitive Surgical’s net margin of 28% (2024) significantly surpasses both the average and median within its sector. This underscores the company’s strong operational efficiency and highlights its strength in maintaining a competitive edge within the specialised field of surgical robotics. The company's competitive edge is set to grow even stronger with the broader adoption of its systems, greater recognition in medical research, and further supportive regulatory approvals.
Investment Considerations
While ISRG displays robust financial performance and growth prospects, the stock is certainly not cheap when considering a variety of metrics. While this valuation may seem high, it reflects the market’s confidence in the company’s potential for growth, driven by increasing procedure volumes, the approval of new applications, and advancements in robotic surgical technology. These factors create a substantial runway for long-term expansion, which could justify the premium valuation.
EasyAssetManagement holds positions in ISRG through the EasyETFs AI World Actively Managed ETF, (which has delivered a return of 28.9% since its launch at the end of October 2024). However, Intuitive Surgical constitutes a smaller weighting within the portfolio due to concerns over its high valuation.
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