Medtronic (MDT 0.37%) has grown revenue over the years thanks to its solid portfolio of medical devices. The company sells devices worldwide in the areas of diabetes, cardiovascular, neuroscience, and surgical. And this generates billions of dollars in sales and profit annually.
But in recent times, this healthcare giant's big weakness has been a lack of growth. Medtronic has taken action, streamlining parts of the business and acquiring assets that could drive future revenue. That's good news. And there's another element that may help. It's a subject everyone's talking about these days: artificial intelligence (AI). Medtronic is incorporating AI into its devices more and more. Could this boost growth? Let's find out.
Greatly improving products
You may be wondering if AI really could equal earnings growth at a healthcare company. The short answer is "yes." That's because AI should greatly improve medical products and services. For example, it could make devices that are better at detecting disease earlier -- and that means more healthcare facilities are likely to invest in these particular tools. That results in more revenue for the maker of the product.
It's no surprise that forecasts call for major growth in AI in the healthcare market. At a compound annual growth rate of 47%, it's expected to reach more than $100 billion by the end of the decade, according to a MarketsandMarkets report.
Medtronic saw this coming and has already put the emphasis on AI. The company uses it across its platforms -- from delivering just the right amount of insulin to wearers of its continuous glucose monitoring systems to perfecting the outcomes of spinal surgery.
The company even won an award recently for one of its AI products. Last month, Medtronic's AccuRhythm AI aglorithm technology won MedTech Breakthrough "best new monitoring solution" award. The technology improves the quality of data from cardiac monitors, which are placed on people with abnormal heart rhythms.
A deal with Nvidia
And earlier this spring Medtronic signed a deal with Nvidia to ramp up its GI Genius endoscopy tool. The GI Genius already uses AI to detect pre-cancerous tissue. The partnership will allow third-party developers to train and test AI models that may eventually be incorporated into the GI Genius.
Medtronic sees AI as a big part of its future. The company considers it the key to personalized medicine. And it's probably right. The ability to better predict problems or outcomes for each patient is what AI promises to do, and this could be considered one definition of personalized medicine.
Of course, Medtronic isn't the only company investing in this game-changing area. For example, GE Healthcare just won clearance for its new deep-learning technology to improve PET/CT scan images. And pharmaceutical companies such as Eli Lilly have partnered with AI technology companies to accelerate their drug-discovery efforts.
But considering Medtronic's broad use of AI already, the company could be among the top players in the field. GlobalData considers Medtronic as one of the "leading adopters" of the technology. And the firm predicts AI will be the main driver of medical device innovation as of this year.
Translating into growth
So far, Medtronic's AI efforts have translated into some growth. For example, strong adoption of the GI Genius helped the company's gastrointestinal (GI) business grow 16% in the most recent quarter. Medtronic also saw 6% growth in neuroscience, which includes its spine surgery products.
Now, let's get back to our initial question: Will Medtronic's AI efforts boost growth? It won't happen overnight, but it's likely to happen over time. The focus on AI along with Medtronic's other efforts should result in gains.
Meanwhile, Medtronic is trading for only 16 times forward-earnings estimates. This looks cheap for a company offering two big advantages right now. First, even if growth isn't fantastic these days, Medtronic still brings in billion-dollar earnings. And second, Medtronic is well positioned in a potentially game-changing new market. All of this means now is a great time to buy shares of this company, and bet on how AI may transform healthcare and healthcare companies' earnings.
