Shares of Intuitive Surgical (ISRG +1.60%) jumped on Wednesday after the robotic-assisted surgery pioneer reported its financial results for the first quarter of 2026. There was a lot to like from the update. Both system placements and procedure volume jumped sharply during the period.
Is the company's latest report and the market's positive reaction to it a buy signal? Or are shares just too expensive?
Image source: Intuitive Surgical.
A blowout quarter
Intuitive Surgical's first-quarter results easily topped Wall Street's expectations.
Revenue for the period rose 23% year over year to $2.77 billion -- well ahead of analysts' consensus forecast for revenue of $2.62 billion. And Intuitive Surgical's non-GAAP (adjusted) earnings per share soared 38% year over year to $2.50, crushing the consensus estimate of $2.11.
This robust top- and bottom-line momentum was driven primarily by strong growth in procedure volume and a solid jump in system placements.
Worldwide procedures grew approximately 17% year over year in Q1. And hospitals are aggressively adopting the company's newest technology. The company placed 431 da Vinci surgical systems during the quarter -- up about 17% from the 367 placed in the year-ago period. More importantly, 232 of those placements were the new da Vinci 5 systems, representing more than half of the total and signaling strong demand for the next-generation platform.
Margin expansion and a raised outlook
In addition to strong sales growth, Intuitive Surgical is demonstrating exceptional operating leverage (when revenue grows faster than expenses).
The company's adjusted operating margin improved to a very healthy 39% during the quarter.
Further, its adjusted gross margin expanded to 67.8% -- up from 66.4% in the first quarter of 2025.
Reflecting its strong momentum in sales, procedures, and profitability, management raised its full-year 2026 guidance.
The company now expects worldwide da Vinci procedure growth of 13.5% to 15.5%, up from its prior forecast of 13% to 15%. It also raised its adjusted gross profit margin outlook to 67.5% to 68.5%.
With all of this said, the company is experiencing some challenges in its Asia market, with management citing domestic competition and "policy-driven pricing pressure" as key challenges in China, specifically. And management said in its first-quarter earnings call that it remains "cautious in our outlook for the Japanese market in the short term given the financial position of public hospitals in recent periods."
Priced for perfection
Intuitive Surgical's results paint a picture of a downright exceptional company. Not only are sales and profit trends great, but the underlying business arguably has a powerful razor-and-blade business model. For instance, its instruments and accessories segment generates dependable recurring revenue that accounts for a majority of its total sales as hospitals operate their systems, de-risking the business somewhat from typical hardware upgrade cycles.
But investors must weigh this exceptional business performance against the stock's valuation.
Following the stock's post-earnings gain on Wednesday, shares trade at about 51 times Intuitive Surgical's adjusted trailing-12-month earnings per share.
At this premium, the market appears to have already priced in years of flawless execution and robust growth. More specifically, a valuation like this assumes Intuitive Surgical will continue to easily fend off competition, navigate macroeconomic pressures in key international markets, and maintain its high margins. Therefore, if procedure volumes unexpectedly slow down or if hospital capital spending budgets get squeezed, the stock could take a significant beating.
While Intuitive Surgical is a wonderful company with a wide moat, I don't believe the stock is a buy at this level.
The margin of safety simply seems too thin.
But with results like this, I'd be hard-pressed to consider selling the stock if I already owned it.
