Intuitive Surgical

Intuitive Surgical reported a sequential slowdown in procedure growth globally, as well as in sales of instruments and accessories, for the second quarter. Despite that, the company improved its gross margin guidance slightly.

Why it matters: During the first half, the market was cautious about Intuitive's pipeline, as global procedure growth has moderated from the high teens/20s in 2025 to the mid- to high teens so far in 2026, close to management's guidance. The expiration of US Affordable Care Act subsidies raises concerns about near-term capital investment from hospitals. Longer-term threats include the emergence of competition in low-cost procedures and instruments and shrinking bariatric surgery volume in response to the adoption of weight-loss drugs. We do not see structural demand challenges, as the policy-driven setback is likely a deferral rather than a permanent step away from treatment. Long-term opportunities remain intact, with high-potential procedures such as cardiac and mastectomy accelerating, supporting future robotic surgery adoption.

The bottom line: We confirm our $378 fair value estimate for wide-moat Intuitive. The stock has lost about 28% year to date and now trades close to our fair value estimate, in 3-star territory, for the first time since 2022. We believe Intuitive's next-generation platform should maintain its market dominance. Around 70% of systems in the US are leased, giving hospitals investment flexibility. Together with trade-in options, this should support the pipeline despite economic headwinds.

Key stats: Procedures grew globally by 16%, slowing sequentially for both da Vinci and Ion. Sales of instruments also slowed to 18% growth, compared with 23% the quarter before. Gross margin guidance was raised by 0.5 points to 68%-69%.

Coming up: Next quarter will be challenged by tough comparisons; in the year-ago third quarter, Intuitive's procedure growth was 19%.

Our fair value estimate is $378 per share.

The company's strong performance in general surgery continues to exceed our forecast, with hernia and cholecystectomy in particular staying strong. General surgery is the largest category by volume globally, with more than 1.5 million procedures in 2025 (up from 500,000 in 2020). We still forecast healthy expansion here, with total volume growing in double digits on average for the next decade, particularly outside the US. Our overall US procedures growth rate averages in high single digits throughout our 10-year forecast; outside the US, we expect growth rates to be materially higher.

With the launch of da Vinci 5, system sales accelerated materially in 2025 and should grow robustly in the next few years, despite the material growth in utilization rates, which absorb some of the incremental procedure volume. However, our forecast for system sales over the next decade is in the midsingle digits, given less favorable pricing dynamics due to the company's push into more economically sensitive hospitals as we see competitors entering the market. Instruments revenue is expected to grow roughly 10% per year on average, in line with our procedures growth forecast. We anticipate Ion to generate more than $1 billion in revenue by the end of our forecast.

We expect adjusted operating margin to move into the low 40s, implying midteens growth in operating income over that period. Several factors will limit margin expansion opportunities, such as the mix skewing toward lower-priced procedures, the rollout of lower-priced platforms that carry lower margins, and eventual pressure from competition. However, Intuitive will continue to benefit from growing utilization and adoption of Ion, more than offsetting any pressures. Ion is a platform for minimally invasive peripheral lung biopsies.

Through its expanding installed base of more than 11,000 da Vinci systems and its vast procedure database, we think Intuitive has dug a wide moat around its business. Healthy system and instrument pricing reflect the firm's monopoly status in its niche, allowing Intuitive to achieve profitability rarely enjoyed by medical equipment makers, with adjusted operating margins close to 30%. In fact, gross margins on Intuitive's systems are comparable with its instruments (consumable component) profitability, which is distinctive in an industry where consumables typically command a much higher gross margin.

Rarely does such an attractive and rapidly growing market as robotic surgery stay impenetrable to competition for as long as it has, and Intuitive's monopoly has recently ended, although Medtronic and J&J are only slowly bringing their competing platforms to the market and only in limited indications. Even as several competitors enter the field, none—even the established device companies like Medtronic or J&J—are in a position to alter the industry landscape, significantly disrupt the firm's operations, or erode its returns on capital in the near to medium future. Intuitive's intellectual property on its system and growing instrumentation base is a sizable barrier, but it is the ever-growing clinical database that presents the biggest challenge for a new entrant. To amass the body of data that Intuitive possesses, new competitors will have to convince enough hospitals to purchase or trial their instrumentation for an extensive period, train robot-naive or da Vinci-trained surgeons, and recruit willing patients. However, we are certain that competing instruments—if priced attractively—may make inroads into procedures/specialties currently underpenetrated by Intuitive, particularly in hospitals that have balked at da Vinci's cost. Intuitive is responding to this threat by expanding its platform roster to include lower-cost alternatives, offering operating leases to soften the high-sticker-price impact, and lowering the instrument cost to be more comparable with manual laparoscopy.

Once a hospital purchases Intuitive's system, switching costs become exorbitant, as the average system price of around $1.6 million represents a large portion of a typical hospital's annual capital expenditure budget. Customers would need a very compelling technology or price difference to switch before their machines wear out naturally (the upgrade cycle is around five to eight years). Given the need to purchase new instruments with each procedure, installed systems should provide a relatively dependable stream of revenue per procedure as long as surgeons continue to use them.

The biggest question around Intuitive's moat is the future of robotic surgery in general. It is plausible that cash-strapped hospitals that receive no additional reimbursement for robot usage may opt for a plodding, yet cheaper, alternative to manual laparoscopy, particularly if the clinical body of work supporting robotic surgery over traditional minimally invasive surgery is lacking. It is also plausible that robotic surgery may face application limitations, but considering the number of various procedures already performed on da Vinci, this seems unlikely. With several new entrants challenging the firm, the prospects for the first time are less certain. For now, we anticipate only marginal competitive pressures, but over time, Intuitive's formidable competitors might make a dent in its dominance. Last but not least is the big unknown—artificial intelligence—which could be a threat to the moat but also an opportunity; Intuitive, through its massive installed base and procedures history, would be in a leading position to capitalize on advancements in this area.

Uptake of Intuitive's next-generation platform has been strong, giving significant momentum to system placements in the next few years.

Intuitive is enjoying tremendous success in general surgery, including emergency and after-hours settings, which is now its highest-volume surgical area. The opportunity is particularly attractive internationally.

Intuitive's foray into bronchoscopy shows the company isn't resting on its laurels and is willing to look to other areas in need of robotic assistance.

We may be seeing the emergence of some competition, particularly for lower-cost procedures. Competition, in the form of refurbished tools, is also going after instrumentation.

Intuitive's margins have been declining as the company has been investing in its Ion platform and next-generation da Vinci system.

While bariatric robotic surgery adoption has been strong, the entire field is under significant pressure from the emergence of weight-loss drugs.