Palantir Technologies (PLTR +2.39%) has been a standout stock during the AI (artificial intelligence) boom. The AI data platform provider's stock has soared more than 300% over the last 12 months as the company's. But for investors seeking rapid revenue growth supported by a more durable business (and not to mention a much more reasonable valuation), Intuitive Surgical (ISRG 0.50%) is a better bet.
Until Tuesday, shares of Intuitive Surgical were having a rough year. But the stock jumped after the robotic-assisted surgery pioneer posted better-than-expected third-quarter results and nudged its outlook higher.
Here are five reasons why Wall Street loved Intuitive Surgical's latest results, followed by a look at why this stock is a better idea than Palantir.
Image source: Getty Images.
1. Procedure growth is doing the heavy lifting
Intuitive Surgical investors know that procedure trends are one of the most important metrics to watch when assessing the company. Not only do more procedures lead to greater instrument and accessory sales, but they also demonstrate demand for the company's products.
Global procedures across da Vinci (the company's flagship minimally invasive surgical robot) and Ion (a lung-focused system) rose about 20% year over year in Q3. Specifically, Da Vinci procedures rose 19% and Ion procedures climbed 52%. That pace is faster than the company's full-year 2024 da Vinci growth of 17%(https://isrg.intuitive.com/news-releases/news-release-details/intuitive-announces-fourth-quarter-earnings-4) and remains the key driver of Intuitive's model, as volume helps drive instruments and accessories revenue.
Management also raised its 2025 outlook for worldwide da Vinci procedure growth to about 17% to 17.5%. This is up significantly from the company's prior forecast for 15.5% to 17% growth.
2. System placements surged with da Vinci 5
Hospitals and surgery centers continue to invest in Intuitive Surgical systems. Intuitive placed 427 da Vinci systems in the quarter, up from 379 a year ago. Of those, 240 were the next-generation da Vinci 5, compared with 110 last year. Its installed base of da Vinci surgical systems increased 13% to 10,763 systems, which expands the future pool of recurring revenue tied to procedures.
Ion system placements dipped to 50 from 58 in the year-ago quarter, yet it's worth emphasizing that Ion procedures rose more than 50%. That points to better utilization of existing units and is likely a positive signal for future demand.
3. Recurring revenue keeps compounding
Instruments and accessories revenue increased about 20% to roughly $1.5 billion, moving in step with procedures. This high-margin recurring revenue stream is key to the lucrative razor-and-blade approach of Intuitive Surgical's business.
4. Management lifted its outlook
In addition to raising its outlook for full-year procedure growth, Intuitive also nudged its non-GAAP gross margin outlook to 67% to 67.5%, compared with its previous forecast for 66% to 67%.
Those changes look small on paper yet matter for investors -- especially since the updated margin range includes an estimated tariff impact of roughly 0.7% of revenue, down from about 1% previously, suggesting higher-than-expected sales growth and operating leverage are helping offset some external cost pressure.
NASDAQ: ISRG
Key Data Points
5. Repurchases accelerated
Capital returns stepped up, highlighting management's confidence in its business.
Management repurchased four million shares for $1.92 billion in Q3. That is a sharp increase from Q2, when the company bought back 350,000 shares for about $181 million. The jump -- both in shares and dollars spent -- signals confidence in the company's long-term potential.
So, how does Intuitive Surgical stand up to Palantir? While Palantir's 48% revenue growth in the company's most recently reported quarter crushes Intuitive Surgical's 23% top-line growth in Q3, the stock still can't measure up to Intuitive for two reasons: valuation and durability.
Regarding valuation, if you thought Intuitive Surgical is expensive with its forward price-to-earnings multiple of 48 and its price-to-sales ratio of 18, https://finance.yahoo.com/quote/ISRG/key-statistics/, just look at Palantir. The AI stock's forward price-to-earnings multiple is 217, and its price-to-sales ratio is 137 as of this writing.
On the point of durability, it's more a matter of opinion. While someone could easily disagree with me, I don't believe that Palantir's business model is as predictable or durable as Intuitive Surgical's. In other words, I think Intuitive Surgical has a more significant competitive edge. It certainly has a more proven one. The company has been handily outperforming the competition since the first da Vinci surgical system was launched in 2000.
Of course, Intuitive Surgical isn't perfect. A number of risks could weigh on the company -- and the stock. Hospital capital spending can slow, and tariff policy could pressure margins if duties increase again. In addition, competition could intensify. Even so, Intuitive's fast-growing procedure growth and its strong system placements justify the stock's current valuation. For investors seeking a high-growth alternative to Palantir with a more reasonable valuation, Intuitive looks like the better bet today.
