Intuitive Surgical (ISRG -1.34%) fell about 6% on Wednesday, following remarks at a healthcare conference, where management flagged tariff and international-market pressures.
Shares of the minimally invasive surgical robotics company were already choppy after July earnings. Wednesday's slide, therefore, worsened a sell-off and pushed the stock back to lows last seen in April during a market sell-off amid tariff scares.
For investors, the question is whether the headlines reflect a deterioration in fundamentals or just near-term noise.
Despite the stock's huge decline of about 20% over the last three months, the core business looks incredibly strong. Still, management's recent comments are worth some consideration as investors decide whether this is a good time to buy shares or not.
Image source: Getty Images.
What management said -- and why the stock reacted
At a Wells Fargo healthcare investor conference this week, Intuitive Surgical chief financial officer Jamie Samath reminded investors that some year-ago demand in Japan was boosted by lingering COVID funds, and that several international markets are now dealing with budget constraints. He also highlighted pricing pressure in China and rising domestic competition. These factors, of course, could negatively affect demand and temper system orders.
To help customers navigate tighter budgets, Intuitive plans to lean more on leasing in international markets. Leasing currently only accounts for about 30% to 40% of placements outside the U.S. -- far below the U.S. mix. None of this is new to the surgical-robotics market. But hearing it plainly can rattle a stock after a big multi-year run.
Tariffs added to the nerves. Management has previously quantified a roughly 1-point gross-margin headwind from tariffs in 2025, with the final impact dependent on how policies evolve. But Samath said that the impact of tariffs could be higher next year.
Why the pullback looks like an opportunity
Investors should keep in mind the sort of company we're talking about here. A slowdown and some margin headwinds are permissible given the company's backdrop of impressive growth.
In Q2, Intuitive Surgical's revenue rose 21% to $2.44 billion as worldwide da Vinci procedures increased roughly 17%. Placements of da Vinci surgical systems during the quarter climbed to 395 units, including 180 da Vinci 5s, and the installed base reached 10,488. Non-GAAP earnings per share (EPS) was $2.19, up from $1.78 a year ago. Management also guided for 2025 procedure growth of about 15.5% to 17%, a range that implies continued, though moderating, expansion.
These are not the numbers you typically see from a business in trouble.
The investment case in Intuitive Surgical still rests on procedure growth, an expanding installed base, and higher-value platforms. Q2's 17% procedure growth and a 14% larger installed base support a resilient annuity stream from instruments and accessories, which made up about $1.47 billion of quarterly revenue. Meanwhile, the da Vinci 5 rollout should drive incremental utilization and mix over time as features are adopted and trade-ins flow through the system. Investors following the medical devices industry will recognize how critical these adoption cycles can be to sustaining growth.
The growth stock's valuation, even after its recent pullback, remains premium -- but not unworkable for a durable compounder. At roughly $440, the stock trades near 50 times an annualized run-rate of Q2 non-GAAP EPS ($2.19 x 4). This isn't too bad for a market leader growing as rapidly as Intuitive Surgical is. The flip side, however, is straightforward: if procedure growth slows meaningfully below management's expectations -- or if international pricing pressure intensifies, the valuation multiple has a lot of room to compress. Overall, I'd argue that -- for investors accustomed to buying high-quality growth stocks -- the risk/reward balance is solid after the stock's recent drawdown.
One final nuance: Intuitive's management team is notoriously conservative. They consistently highlight risks, often baking in buffers to their outlook. That trait can be frustrating in the moment, but it has also built credibility over decades of execution. Against that backdrop, this week's sober commentary reads more like a noteworthy warning -- not a red flag. For patient investors, this is likely a great time to buy shares of an incredible company with a long runway.
