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Here's a Great AI Stock You Might Be Overlooking

By Keith Speights - Oct 13, 2019 at 9:00AM

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This medical innovator is quietly working on artificial intelligence technology that could pay off nicely for investors.

What individual stocks come to mind when you think of artificial intelligence (AI)? If you're like me, you'll think of stocks like NVIDIA, Alphabet,, and Microsoft. All of these companies are certainly leaders in the AI arena.

But AI is becoming so pervasive that companies across multiple industries are implementing the technology in innovative ways. For many of them, AI could ultimately expand their markets and serve as a catalyst for their stocks. Intuitive Surgical ( ISRG 1.77% ) is one of these companies. Here's why the robotic surgical systems pioneer is a great AI stock you might be overlooking.

Big letters AI made up of circuits over smaller "ARTIFICIAL INTELLIGENCE" with a view of Earth with lighted points that are connected

Image source: Getty Images.

Now hiring

AI and robots aren't an unusual pairing. But Intuitive Surgical's surgical robot systems aren't your R2D2 and C3PO kinds of robots. (For those who aren't Star Wars fans, R2D2 and C3PO were two somewhat comedic robots in the movies.) Instead, Intuitive's flagship da Vinci system employs robotic arms that are manipulated by surgeons at a control center. At first glance, it wouldn't seem that AI would be involved at all.

But I recently stumbled across a job posting from Intuitive Surgical that reminded me just how much the company is focused on AI. This particular position was for a software engineer in Intuitive's imaging and intelligence group. The job description stated that the role included "automating workflows around data processing pipelines for machine learning (ML) and artificial intelligence (AI)."

If your eyes glossed over just reading that last sentence, I understand. Just know that Intuitive Surgical is now hiring for software gurus who can help the company improve its robotic surgical systems using AI and a specific type of AI called machine learning.

This software engineer slot is only the latest example of Intuitive Surgical's AI-focused hiring. The company recently posted a job for a machine learning engineer but apparently has already filled the position. The job description stated that this position is "primarily responsible for developing and deploying novel ML-driven products for the da Vinci platform," adding that "this primarily will involve training models for solving computer vision and robotics problems."

Intuitive's quiet AI focus

These and other hires in the past show that Intuitive Surgical is investing in AI. But the company doesn't talk a lot about exactly what it's doing with AI technology.

In Intuitive's second-quarter conference call in July, CEO Gary Guthart noted that the company is using "informatics and AI to deliver relevant validated insights" as part of a broader focus that he called "intelligent surgery." That isn't exactly a detail-loaded statement.

The reference in Intuitive's machine learning engineer job posting to "solving computer vision and robotics problems" could provide a key hint as to what the company is working on, though. Computer vision is an intriguing area of AI that enables computers to understand images in similar ways as humans. It seems highly likely that Intuitive Surgical is researching ways for its da Vinci system to provide feedback to surgeons based on what the systems' cameras "see" inside a patient's body to help improve the outcomes of the procedure. 

Don't expect Intuitive Surgical to introduce AI technology that actually performs a surgical procedure on its own anytime soon, though. The better bet is that the company will use AI in innovative ways to make human surgeons better at what they do. 

Over the long run, though, the opportunities for AI with Intuitive's surgical robot systems are immense. It's not farfetched to envision a scenario where AI generates the surgical plan using data from the individual patient and a large database of previous surgeries. In this future setting, the surgeon would oversee the AI system as it performed the actual operating in a similar way as a human pilot watches an aircraft's autopilot system fly the plane.

An intelligent pick

While Intuitive Surgical quietly develops new AI technology for its robotic surgical systems, the reasons to buy this stock speak pretty loudly on their own. Intuitive's business model generates an impressive level of recurring revenue (over 70% of total revenue). The company's revenue and earnings continue to grow by solid double-digit percentages. Aging demographics trends should fuel higher demand for the types of procedures that are ideally suited for the company's surgical robots.

Of course, investing in growth stocks usually means you pay a premium. Intuitive Surgical is no exception, with shares trading at over 37 times expected earnings. Any hiccups could cause the stock to plunge.

Some might worry that the emergence of new competitors, notably including medical device giant Medtronic, in the robotic surgical systems market could cause a big hiccup for Intuitive Surgical's growth. My view, though, is that the market is big enough for multiple players and that competition could even be a positive for Intuitive

Even if you don't think of Intuitive Surgical as an AI stock, rest assured that the company is doing plenty of thinking about AI. And I suspect the under-the-radar AI efforts Intuitive is undertaking today will make this stock an even bigger winner in the future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
$330.08 (1.77%) $5.74
Microsoft Corporation Stock Quote
Microsoft Corporation
$337.30 (2.03%) $6.71
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,913.06 (2.65%) $75.11, Inc. Stock Quote, Inc.
$3,556.72 (1.42%) $49.65
NVIDIA Corporation Stock Quote
NVIDIA Corporation
$331.48 (1.44%) $4.72
Medtronic plc Stock Quote
Medtronic plc
$108.73 (1.90%) $2.03
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,922.36 (2.57%) $73.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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