Intuitive Surgical: A Long-Term Investment with Major Upside Potential

As Intuitive Surgical (NASDAQ: ISRG) continues to shape the future of healthcare with its robotic surgery systems, analysts forecast a nearly 10x increase in its stock price over the long term. This growth mirrors the remarkable trajectory of Nvidia’s stock in recent years. Here’s how that potential is unfolding.

The Surge in Robotic Surgeries

Intuitive Surgical has significantly ramped up its operations, increasing the annual number of procedures from around 500,000 to 2.3 million over the past decade.

Strong Market Demand and Proven Technology

Globally, over 300 million surgeries are performed each year. If robotic systems capture even a fraction of this market—say, half—this could mean 150 million robotic surgeries annually, a staggering increase from ISRG’s current figures. In fact, some hospitals already report that robotic systems account for over 15% of their surgeries.

Why is robotic surgery gaining popularity?

• Decreased Errors: Robotic systems help lessen human mistakes during surgeries.
• Fewer Complications: Minimally invasive procedures lead to reduced surgical complications.
• Quick Recovery: Patients experience faster recovery and less scarring.

The success of these surgeries is likely to attract more patients, steering them towards minimally invasive options rather than traditional approaches.

Currently, each robotic surgical system is estimated to perform around 250 surgeries per year. To meet the projected demand of 150 million robotic surgeries, approximately 600,000 robotic surgery platforms would be needed. With each unit generating around $530,000 in revenues from instruments and accessories, plus an additional $130,000 from servicing yearly, we could witness an astounding over $350 billion in recurring annual revenue.

Facing the Competition

While other companies are entering the robotic surgery space, Intuitive Surgical remains the frontrunner. For example, Medtronic’s Hugo robotic system is awaiting U.S. FDA approval, and Johnson & Johnson has yet to start clinical trials for its Ottava system. Smaller companies like Asensus Surgical and Stryker also trail behind.

Intuitive Surgical’s latest system, the da Vinci 5, is FDA-approved and widely used. Hospitals prefer continuing with this system since their surgeons are already trained on it. Switching platforms would mean additional training costs. Moreover, the da Vinci 5’s versatility enables it to handle a variety of surgeries, including Gynecological, Urological, Bariatric, Colorectal, Thoracic, Cardiac, and General procedures.

Impressive Financials

Intuitive Surgical boasts a remarkable gross margin of nearly 70% and a net margin of around 30%. As the company expands its installed base and recurring revenues grow, these margins have the potential to improve further.

If ISRG can capture half of the global robotic surgery market, projected revenues could reach $175 billion annually. With a net margin of 32%, this translates to approximately $55 billion in profits. Based on a 30x earnings multiple, Intuitive Surgical’s valuation could potentially increase by about $1.6 trillion—propelling its stock price from around $500 to nearly $5,000.

Building this level of scale may take time. However, investors should focus on long-term potential, perhaps looking towards 2035 and beyond. This is a buy-and-hold investment with significant growth prospects, despite possible fluctuations in the near term. In summary: Intuitive Surgical is rapidly expanding its robotic surgery offerings, holding a technological edge, and addressing a vast market, aligning its high valuation within achievable reach.

This year, ISRG stock has risen over 50%. However, its performance over the past three years has shown volatility, with annual returns fluctuating compared to the S&P 500. Specifically, ISRG recorded returns of 32% in 2021, -26% in 2022, and 27% in 2023. Conversely, the Trefis High Quality Portfolio—a collection of 30 stocks—has provided consistent returns, outperforming the S&P 500 in each year of this period. The HQ Portfolio has offered better returns with lower risk, leading to a smoother investment experience.

[1] Returns as of 10/24/2024
[2] Cumulative total returns since the end of 2016

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.