Intuitive Surgical (ISRG +13.93%), which specializes in the robotic-assisted surgery market, has had a difficult year. The company is facing a significant threat from the impact of President Donald Trump's tariffs on its financial results, which spooked investors and sent the stock in the wrong direction. Shares are down by 17% since January, and aren't that far from their 52-week lows of $425.
Should investors abandon the stock? In my view, there remain excellent reasons to invest in Intuitive Surgical at this time. Let's consider three of them.
1. Favorable industry trends
Intuitive Surgical markets robotic-assisted surgery (RAS) devices, with the company's best-known product being the da Vinci system.
RAS devices are arguably the future of surgery, as they can improve precision during procedures and lead to better clinical outcomes for patients. Machines like the da Vinci system use tiny instruments inserted into patients' bodies via small incisions, which avoid the large cuts that open surgeries often require and lead to less bleeding and scarring.
The results include faster recovery times and shorter hospital stays for patients. Hospitals also benefit, as RAS devices put them in a strong position to compete for patients against providers who don't offer minimally invasive surgeries.
The company ended the second quarter with an installed base of 10,488 systems, an increase of 14% year over year. During the period, da Vinci procedure volume grew 17% compared to the year-ago period. This is a critical metric for Intuitive Surgical, which generates most of its revenue from the sale of instruments and accessories, a figure that increases in tandem with the volume of procedures.
The best news is that the RAS market can still grow significantly. The worldwide surgical market was worth an estimated $3.35 trillion in 2024, while RAS accounted for just $11.2 billion of that.
True, not all procedures are RAS-eligible. But if even 2% of them are, then the market remains underpenetrated. And over the long run, due to the world's aging population (and other dynamics), demand for all procedure types, including minimally invasive ones, will increase. The significant opportunities available to Intuitive Surgical improve its prospects.
2. A competitive edge
It's also important to consider Intuitive Surgical's leading position in this growing market. Developing robotic systems is complex enough, but that's just the first step: Manufacturers then have to conduct clinical trials and obtain regulatory clearance.
In other words, there are significant barriers to entry, including high up-front investments with no guarantee of future returns, as well as stringent regulatory requirements. Intuitive Surgical has already jumped through all these hoops and has launched five iterations of its crown jewel, with the latest earning approval last year.
The medical device specialist has proven expertise, a vast amount of available clinical data, and relationships with surgeons and healthcare systems that help to improve its device by taking into consideration their pain points.
Furthermore, it benefits from switching costs. Between the high cost of the da Vinci system and the time required for clinical training, healthcare systems spend a substantial amount on these machines and are unlikely to switch unless a drastic change occurs. That should help the company retain the bulk of its customers.
3. Industry leadership and flexibility
In the second quarter, Intuitive Surgical's revenue increased by 21% year over year to $2.44 billion. Non-GAAP (adjusted) earnings per share were up 23% to $2.19. Those are strong results, and the company achieved them despite the impact of tariffs on its revenue. However, it anticipates that things will only worsen, and tariffs will further harm its financial results if the Trump administration maintains its aggressive trade policies.
Nevertheless, the tariff situation remains somewhat uncertain and continues to evolve; there are no quick, short-term fixes for Intuitive Surgical. But once things settle down, it will seek ways to mitigate the impact of tariffs -- assuming Trump's policies survive his administration. The company's existing position should afford it enough flexibility to do so. For instance, while management doesn't plan to increase prices right now, that's not off the table in the long run.
Hospitals will likely choose to absorb relatively small price increases for da Vinci systems (and their associated instruments and accessories) rather than scrapping the whole platform and starting from scratch, another consequence of Intuitive Surgical's switching costs. Even minor price increases across the range of its client base could help offset some of the higher impact of tariffs. The company could also explore relocating its manufacturing operations, including bringing some back to the U.S.
So, although tariffs pose a threat to Intuitive Surgical's business, its long-term potential and wide moat should eventually allow it to overcome this issue. Intuitive Surgical's stock remains a buy, in my view.
