ISRG: The "NVIDIA" of Robotic Surgery

Source: TradingKey

Investment Thesis

Since ISRG's share price reached a high of $610 in January, due to the uncertainties caused by trade policies and tariff, as well as the impact of one-off events such as the recall of the Da Vinci 5 system, ISRG's share price experienced a significant decline at the end of February, with the decline exceeding 25%. With the outstanding performance delivered by the company in the first quarter of 2025, even after the management gave conservative guidance due to tariffs, the share price has recovered most of the lost ground. We expect that with the further ease of the tariff policy, the unexpected increase in the amount of surgeries, the strong placement of equipment and the full launch of the DV 5 system, the stock price still has further room for increase in the short term. In the long term, as a leading company in the rapidly growing and extremely low-penetration market of robotic surgery, ISRG, with its first-mover advantage, innovative products and unique business model, makes us optimistic about ISRG in the long term and believe that it is a target that long-term investors can choose to attack or defend.

Industry Overview

Due to the rising incidence of chronic diseases such as cancer, cardiovascular diseases and orthopedic diseases, a large number of patients worldwide need to undergo surgical operations. In addition, the increasing number of elderly patients with chronic diseases and the rapid popularization of sedentary lifestyles have greatly raised the incidence of age and lifestyle-related chronic diseases. As a result, the demand for robotic surgical operations for emergency treatment has also increased. Coupled with the shortage of medical staff after the pandemic, the demand for robots that can provide precision and analytical capabilities has further strengthened.

Robotic surgery, also known as robot-assisted surgery, can help surgeons perform various complex surgeries more precisely, flexibly and accurately. The global robotic surgery market size is expected to reach 11.2 billion US dollars in 2024. According to Business Insights, it is projected that the global robotic surgery market size will increase from 13.32 billion US dollars in 2025 to 42.21 billion US dollars in 2032. The CAGR during the period from 2025 to 2032 is 17.9%. Among them, the North American market holds a dominant position in the robotic surgery market, with a market share of 74.7% in 2024 and is expected to grow steadily at a CAGR of 20%.

Source: Business Insights

ISRG Product Positioning

Intuitive Surgical, Inc. is a medical technology company headquartered in California, specializing in the development, production and sale of robotic surgical systems, especially in the field of minimally invasive surgery.

Da Vinci Surgical System

The first core product of ISRG is the Da Vinci surgical system, which performs complex surgical operations through minimally invasive methods. By using 3D high-definition vision and the flexibility of robotic arms, it helps surgeons improve the accuracy of surgeries, reduce the probability of artificial tremors, and accelerate the recovery speed of patients.

Source: Northwell Health

Ion Endoluminal System

The second product is the Ion Endoluminal System, which is mainly used for minimally invasive lung biopsy. It helps doctors diagnose lung diseases more accurately and significantly reduces trauma to patients compared to traditional open biopsy.

Source: Singing River Health System

The Competitive Advantages of ISRG

Intuitive Surgical is a leader in the field of robot-assisted surgery, and its core product, the Da Vinci surgical system, is widely used worldwide. According to the 2024 industry report, ISRG holds approximately 60% of the global robotic surgery market share. We expect that ISRG will still dominate mature markets in the next five years and gradually increase its penetration rate in emerging markets. The reasons are as follows:

First-mover advantage: ISRG has launched the first-generation Da Vinci surgical system since 2000. Up to now, it has undergone five generations of product optimization and iteration. The company has more than 5,300 valid patents and more than 2,400 pending patents worldwide. So far, the Da Vinci system has installed 10,189 sets of systems worldwide, completed nearly 20 million surgeries cumulatively, and has very large clinical database. The network effect formed based on the first-mover advantage is difficult to be surpassed by competitors.

Source: ISRG

Technological leadership: The Da Vinci surgical system is currently the industry standard. Through 3D high-definition vision, wrist-mounted instruments and a variety of highly sophisticated surgical tools, it enables surgeons to perform high-precision minimally invasive surgeries. Moreover, ISRG still maintains an average product update and iteration rate of 3 to 5 years. The latest generation of DV5 system has added the haptic feedback function, which is expected to further enhance the surgical efficiency. Therefore, compared with its competitors, the Da Vinci surgical system supports a variety of surgical types, including urology, gynecology, general surgery, thoracic surgery, etc., with a very wide coverage. Although competitors are striving to catch up through methods such as modular design, due to their limited coverage, lack of clinical data and still being in the early stage of commercial integrated medical services, the global adoption rate remains relatively low.

Source: Southwest Securities

The highly sticky ecosystem: ISRG's products are not independent products but a comprehensive ecosystem covering hardware, software, training and support, much like NVIDIA in the field of robotic surgery, forming a moat with extremely high entry barriers. With the increasingly improved Da Vinci surgical system and the continuous development of the ISRG ecosystem, the adoption rate of the Da Vinci surgical system by customers has shown an exponential growth and has gradually formed a positive cycle mechanism: The more hospitals adopt the Da Vinci surgical system and the more doctors receive training, the more the number of surgeries and the adoption rate of the system will be further increased. Subsequently, more hospitals will invest, thereby further expanding the adoption and training and further consolidating its market position.

Source: ISRG

The Business Model of ISRG

Source: ISRG, TradingKey

The "razor and blade" business model used in ISRG's Da Vinci system has brought ISRG extremely high margins and stable cash flow. After the hospital pays the initial system installation fee, it also needs to regularly replace the instruments and accessories worn out by each operation. In addition, ISRG will also sign annual service contracts with hospitals and provide them with maintenance, software updates, and technical support, etc.

Source: Stockanalysis

With the increasingly mature development technology of the Da Vinci surgical system, the demand for the Da Vinci surgical system in hospitals is also increasing year by year. Furthermore, the increase in the volume of surgeries has further accelerated the wear and tear of the instruments and accessories of the Da Vinci surgical system. This has led to ISRG's transformation from a revenue model driven by equipment sales to one driven by consumables. This model provides ISRG with a stable cash flow and reduces its reliance on one-off system sales. In the future, ISRG plans to introduce a subscription model to attract more small and medium-sized hospitals with limited budgets and hospitals in emerging markets, reduce initial investment costs to enhance market penetration, or simplify the procurement process of hospitals by bundling systems, instruments & accessories and software, which will further increase its recurring revenue.

Source: ISRG

Financial Analysis and Outlook

Source: Stockanalysis

In its latest earnings report, ISRG exceeded expectations by achieving revenue of $2.25 billion and adjusted earnings per share of $1.81. In addition, the total number of surgeries in 2024 increased by 17% yoy, driven by general surgery in the United States and overseas markets. The increase in the number of surgeries benefited on the one hand from the steady increase in the installed capacity. In the first quarter of 2025, 367 new Da Vinci surgical systems were installed, and the global stock of Da Vinci surgical systems reached 10,189. Among them, there are 509 DV5 systems in use. On the other hand, the penetration rate of robotic surgery continues to increase, especially in emerging market regions.

Source: ISRG

Although the management has lowered the gross profit margin guidance for 2025 due to factors such as the impact of tariffs, increased capital expenditure, and increased legal litigation and research and development expenses, the optimistic outlook for surgical demand remains, and the guidance for surgical volume has been raised to 15%-17%. We believe that the management's guidance for 2025 has fully factored in the worst-case scenario. With the recent significant easing of tariff conditions, a stable capital environment in the United States and overseas markets, and strong demand for the Da Vinci 5 system, we expect the performance guidance for 2025 to be relatively conservative, and the possibility of future performance exceeding expectations increases.

Valuation and Risk

Source: Macrotrend

We are optimistic about the long-term potential of the robotic surgery market. As the leader in this field, ISRG has an increasingly sticky ecosystem and strong operational leverage. With DV5 system entering a new product cycle, the steady increase in surgical volume, the steady growth in installation volume, and the introduction of the subscription model, it is possible for ISRG to significantly enhance its penetration rate in emerging markets. With the current cash reserve of $8.8 billion (debt-free), it stands out in the large medical technology field and supports its premium valuation. Based on the expectation of earnings per share of $9.8 for the next seven quarters and a P/E ratio of 65 times, we set the target price at $637.

The above estimates, of course, also carry downside risks, such as persistent inflationary pressure, supply chain constraints and tariffs, failure or delay in the launch of next-generation robotic systems, and economic slowdown reducing the number of surgeries and medical expenditures, etc. Of course, there is another variable, which is the development of AI. Currently, the impact of AI on the medical equipment field is still at an initial stage. If in the future, driven by AI, we can witness a significant increase in the speed of equipment research and development and iteration, and a significant enhancement in the interaction between doctors and equipment, perhaps we can witness a new round of innovation boom sparked by AI in the medical field.

Overall, we believe that as the leader in the rapidly growing surgical robot market, with its unique business model and ecosystem, it can continue to maintain its lead and constantly erode the market share of its competitors. In addition, with the improvement and mass production of the Da Vinci 5 surgical system, the introduction of the subscription model, and the support of AI, we believe that ISRG will open the door to small and medium-sized hospitals as well as emerging markets. Therefore, we are very optimistic about the long-term prospects of ISRG.