Intuitive Surgical: A Market Leader for the Future.

Intuitive Surgical is the global leader in robotic-assisted surgery, known for its innovative da Vinci Surgical System and a business model centered around recurring revenue, clinical integration, and long-term surgeon loyalty. With a growing installed base, expansion into new surgical procedures, and continuous investment in next-generation platforms like the da Vinci 5, the company is well-positioned to benefit from rising demand for minimally invasive surgery. The question is: Does this medtech pioneer deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that at the time of writing this analysis, I do not own shares in Intuitive Surgical. If you would like to copy my portfolio or see the stock in my portfolio, you can read about how to do so here. I don't own shares in any of their competitors either. If you want to buy share or fractional shares in Intuitive Surgical, you can do so at eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Intuitive Surgical was founded in 1995 in California and is the pioneer and global leader in robotic-assisted minimally invasive surgery. Its core innovation is the da Vinci Surgical System, a robotic platform that enables surgeons to perform complex procedures through small incisions while seated comfortably at an ergonomic console. The system isn’t meant to replace the surgeon, but rather to support and enhance their abilities by offering 3D high-definition vision, robotic arms with wristed instruments, and improved ergonomics that reduce fatigue during lengthy procedures. In 2019, Intuitive introduced the Ion Endoluminal System, which allows doctors to perform minimally invasive lung biopsies. This marked the company’s entry into the diagnostic space. The move reflects Intuitive Surgical’s broader goal of improving patient care at every stage - from early detection of disease to surgical treatment. Intuitive operates what’s known as a razor-and-blade business model, where hospitals purchase or lease the systems and then enter into annual service contracts - typically ranging from $80.000 to $200.000 for the da Vinci system and $55.000 to $65.000 for the Ion system. Each surgical procedure also requires specific instruments and accessories, which generate high-margin recurring revenue. In 2024, more than 80% of the company’s revenue was recurring, supported by millions of procedures performed using its technology. With more than 10.600 da Vinci systems installed worldwide, Intuitive Surgical benefits from strong network effects. Over 76.000 surgeons have been trained on its systems, and many hospitals have built entire surgical programs around the da Vinci platform. The high cost of switching, combined with the time and resources needed to train staff on a new system and rework clinical workflows, creates a powerful switching moat. Intuitive Surgical's competitive advantage is also rooted in its first-mover position. With more than two decades of clinical use, strong brand recognition, and a wide range of regulatory approvals, it has built a foundation that is difficult for competitors to replicate. The company continues to invest in R&D, international expansion, and surgeon training, while developing digital tools and analytics that strengthen its platform. Its cloud-connected systems allow for proactive maintenance, performance monitoring, and personalized feedback through tools like My Intuitive and SimNow, further embedding its technology in surgical workflows. Together, these elements - market leadership, recurring revenue, integrated technology, and surgeon loyalty - form a wide and durable competitive moat that positions Intuitive Surgical to remain at the forefront of the fast-growing field of robotic-assisted surgery.

Management

Gary S. Guthart serves as the CEO of Intuitive Surgical, a role he has held since January 2010 after being handpicked by former CEO Lonnie Smith. He joined the company in 1996, shortly after its founding, and held a variety of leadership roles across engineering, product development, and operations before ascending to the top job. Prior to joining Intuitive, he worked at SRI International (formerly the Stanford Research Institute), where he was involved in developing the early foundations of computer-enhanced surgery - technology that would later shape Intuitive’s flagship da Vinci system. Gary S. Guthart holds a B.S. in engineering from the University of California, Berkeley, and earned both an M.S. and Ph.D. in Engineering Science from the California Institute of Technology. Earlier in his career, he also worked in the Human Factors Lab at NASA, where he helped evaluate pilot performance, a background that gave him a deep understanding of how humans interact with advanced technology - an expertise he would later apply to surgical robotics. Interestingly, Gary S. Guthart has said he never actively aspired to become a CEO. In an interview, he admitted, “I didn’t have a burning desire to be a CEO, and I still don’t.” Instead, he was drawn to Intuitive Surgical’s mission and the impact its technology could have on patient care. That mission continues to motivate him today. His focus has always been on the company’s progress rather than personal ambition. In addition to his role at Intuitive, Gary S. Guthart serves on the Boards of Directors at Illumina and the Silicon Valley Leadership Group, further reflecting his influence across the healthcare and tech sectors.  According to Comparably, employees consistently rank him in the top 5% of CEOs among similarly sized companies, indicating strong internal support and trust in his leadership. I believe Gary Guthart’s combination of technical expertise, long-term commitment to Intuitive Surgical’s mission, and consistent delivery of results make him exceptionally well-suited to lead the company. His steady leadership has been key to Intuitive Surgical’s success and will likely continue to guide its expansion in the evolving field of robotic-assisted surgery.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Intuitive Surgical has maintained a return on invested capital above 10% for each of the past 10 years. Even in the challenging pandemic year of 2020, the company managed to stay above this threshold. Seeing this kind of consistency gives me a lot of confidence - Intuitive Surgical has shown it can deliver strong returns year after year, which is a key trait of a long-term compounder. While the company hasn't yet returned to its pre-pandemic peaks, that’s not a concern for me. Most businesses have been affected by macroeconomic headwinds in recent years, and what matters more is the positive momentum. In 2024, Intuitive Surgical achieved its highest ROIC since 2021, which is an encouraging sign. I believe ROIC will continue to improve as the company focuses on operational efficiency, margin expansion, and better capital allocation. These priorities align with its broader commitment to strengthening returns over time.

The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. There have been a few years when Intuitive Surgical’s equity decreased, but nothing that raises concern. Since 2017, the company has steadily grown its equity, reaching an all-time high in 2021. Although there was a slight decline in 2022 - largely due to broader macroeconomic pressures - Intuitive Surgical resumed its upward trajectory in 2023 and surpassed previous levels in 2024. The new record was driven by the company’s disciplined approach to reinvesting earnings and managing its capital structure effectively.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It’s not surprising that Intuitive Surgical has generated positive free cash flow every year over the past decade. Free cash flow reached its lowest level since 2015 in 2023, mainly due to a significant increase in capital expenditures. These investments continued to rise in 2024, yet the company still delivered its highest free cash flow ever, which is very encouraging. That said, the elevated capital spending has weighed on the levered free cash flow margin, which has declined since 2021. The primary reason for this increase in investment is the company’s expansion of its manufacturing capacity. However, management has indicated that capital expenditures will decrease in both 2025 and 2026, which should have a positive impact on margins going forward. As for the free cash flow yield, it is currently at its lowest point in ten years. This suggests that the stock is trading at a high valuation. That said, we will revisit valuation later in the analysis.

Debt

Another important aspect to investigate is a company’s debt. We need to determine whether the business carries a manageable amount - specifically, whether its long-term debt could be repaid within three years based on earnings. This is typically assessed by calculating the long-term debt-to-earnings ratio. In the case of Intuitive Surgical, this calculation isn’t necessary - because the company has no debt. In fact, it has remained debt-free for the past twenty years. As a result, leverage is unlikely to ever become a concern when evaluating Intuitive Surgical as a long-term investment.

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Risks

One risk is competition. Intuitive Surgical has long held a dominant position in the field of robotic-assisted surgery, benefiting from a first-mover advantage and a large installed base. However, the market is now attracting larger and better-capitalized competitors, which poses a real threat to its leadership. Companies like Medtronic and Johnson & Johnson are investing heavily in their own robotic systems - Hugo and Ottava, respectively. These firms have the scale, financial strength, and global distribution networks to challenge Intuitive Surgical in ways that previous competitors could not. For example, Medtronic’s Hugo system is estimated to cost 20%–25% less than Intuitive Surgical’s da Vinci system, which could appeal to price-sensitive hospitals, especially in emerging markets or cost-constrained environments. In addition to pricing pressure, these new entrants could shift competitive dynamics by offering alternative business models or bundled solutions that hospitals find attractive. Their presence may also extend capital selling cycles, as hospitals take more time to evaluate available options before committing to a purchase. Competition is not limited to large Western firms. In China - one of Intuitive Surgical’s key international markets - a growing number of local players have entered the robotic surgery space. These domestic companies are gaining regulatory approvals and appealing to hospitals with lower-cost systems, further increasing pricing and market pressure on Intuitive Surgical in the region. Another potential threat comes from third-party service providers offering maintenance, training, or consulting services for da Vinci and Ion systems at lower prices. While most customers still rely on Intuitive Surgical for service and support, this could gradually shift as the installed base expands and systems age, especially if third-party offerings become more competitive on cost or flexibility.

Another risk to consider is the broader macroeconomic environment. Intuitive Surgical’s business model relies heavily on hospitals making substantial capital investments—particularly in the purchase or lease of da Vinci surgical systems. These systems represent a significant financial commitment, and when inflation is high, interest rates rise, or credit becomes less accessible, hospitals may tighten budgets, delay elective procedures, or postpone capital spending altogether. Management has noted that these factors have already placed financial pressure on healthcare providers, especially in countries like the UK and Germany, where government policy plays a major role in shaping capital expenditure. As a result, sales cycles have lengthened, and some system placements have been delayed. Economic stress can also cause hospitals to reprioritize. Ongoing labor shortages and rising staff costs may lead hospitals to allocate funds toward operations and staffing rather than new technologies. Smaller institutions with tighter budgets may put off investing in robotic-assisted surgery altogether. Finally, macroeconomic pressure can affect patient behavior. Higher unemployment and rising healthcare costs may lead some individuals to defer elective procedures, reducing procedure volumes and, in turn, impacting Intuitive Surgical’s recurring revenue.

Another risk to consider is regulation. Intuitive Surgical operates in a highly regulated industry where its products - such as the da Vinci Surgical System and Ion Endoluminal System - must comply with a complex and constantly evolving set of healthcare laws across multiple countries. In the United States, the company’s products are overseen by the FDA and must meet strict requirements both before and after reaching the market. Most are considered moderate-risk devices, which means they can be approved through a faster review process where the FDA ensures the product is substantially similar to an existing one. However, future products - or major updates to current systems - may require more rigorous approvals, including clinical trial data and longer review periods. These pathways are more expensive, time-consuming, and uncertain. Additionally, the FDA has the authority to inspect manufacturing sites at any time and can impose fines, halt sales, or withdraw product approvals if it identifies compliance issues. Outside the U.S., regulatory risks multiply. The company must obtain and maintain approvals across the EU, Japan, China, and many other markets, each with their own frameworks. For example, the EU’s transition from the Medical Device Directive to the stricter Medical Device Regulation has increased documentation, testing, and post-market surveillance requirements. In China, product approvals are limited by quota, and all new system placements require multiple layers of local and provincial government authorization. These processes can be lengthy, bureaucratic, and subject to policy shifts.

Reasons to invest

Intuitive Surgical's steadily expanding installed base of surgical systems is a compelling reason to invest in the company. At the end of 2024, more than 10.600 systems were installed worldwide. This growing footprint forms the backbone of Intuitive Surgical’s recurring revenue model. Each additional system placed in a hospital generates ongoing demand for high-margin instruments, accessories, and service contracts. In other words, system placements today create a reliable stream of revenue tomorrow - every time a surgery is performed, consumables are used and replenished, and systems require ongoing servicing. This is a textbook example of the razor-and-blade model at scale. The strength of this dynamic is evident in the company’s results: in 2024 alone, more than 2,68 million procedures were performed using Intuitive Surgical’s platforms, and recurring revenue represented over 80% of total revenue. Notably, the installed base is not just growing - it’s also expanding within existing customers. In 2024, the number of U.S. integrated delivery networks (IDNs) that own 20 or more da Vinci systems increased by 16%. IDNs are large healthcare systems that manage multiple hospitals and clinics under one organization. When an IDN invests in many da Vinci systems, it usually means that robotic-assisted surgery is being adopted across several of its hospitals—not just one. In other words, a decision made by the central organization often leads to broader use throughout the entire network. Similarly, the number of individual hospitals around the world with seven or more da Vinci systems rose by 63% year over year. A large installed base also creates strategic advantages. It makes Intuitive Surgical’s technology increasingly embedded in hospital workflows and surgeon training programs, which raises switching costs and strengthens customer loyalty. Additionally, it provides a strong foundation for the rollout of next-generation products and complementary tools, such as advanced stapling, imaging, or force-sensing instruments. The larger the base, the easier it is to introduce and scale these innovations across the network.

Innovation is another reason to consider investing in Intuitive Surgical. The company has a long history of advancing surgical technology and continues to prioritize research and development as a key part of its growth strategy. With more than 2.000 engineers and researchers, Intuitive Surgical is constantly working to enhance its platforms and push the boundaries of what’s possible in robotic-assisted surgery. In 2024, Intuitive Surgical launched the next-generation da Vinci 5 system, which already has broad clinical adoption. More than 2.500 surgeons performed over 32.000 procedures using the system during its first year. Da Vinci 5 includes improvements such as faster setup, better imaging, significantly increased computing power, and enhanced ergonomics. These upgrades help surgeries run more efficiently, reduce surgeon fatigue, and support better outcomes for patients. Importantly, the da Vinci 5 platform is built to evolve. Hospitals that adopt it will benefit from regular hardware and software upgrades, keeping their systems current without needing to replace them entirely. Intuitive Surgical’s innovation efforts go beyond system upgrades. The company is also expanding into new surgical areas such as hernia repair, bariatric surgery, and transoral procedures, building on its established leadership in urology and gynecology. By increasing the number of procedures that can be performed using its platforms, Intuitive Surgical gives hospitals more ways to utilize the systems they already own, improving the return on their investment. What makes Intuitive Surgical’s innovation especially powerful is that it doesn’t just introduce new tools - it creates new opportunities. Each advancement inspires surgeons to explore new techniques and procedures, unlocking additional value from existing systems. This creates a cycle of discovery, adoption, and growth that strengthens the company’s position over time. In short, Intuitive Surgical’s ongoing investment in innovation not only helps defend its market leadership but also fuels future growth - through both new product launches and expanded clinical use of its current platforms.

Industry tailwinds are a strong reason to consider investing in Intuitive Surgical. The global shift toward minimally invasive surgery is gaining momentum, with robotic-assisted procedures leading the way. While robotic surgery is one of the fastest-growing segments in medical technology - soft-tissue procedures are projected to grow around 17% annually through at least 2026 - it still represents a small portion of the total market. Today, only about 5% of surgeries worldwide are performed using robotic assistance, suggesting substantial room for long-term adoption. Several macro trends are working in Intuitive Surgical’s favor. As populations age, the need for surgical interventions is expected to rise. At the same time, healthcare systems are increasingly focused on reducing recovery times, lowering complication rates, and improving patient outcomes. Robotic-assisted surgery aligns with these goals. Studies show that patients undergoing procedures with Intuitive Surgical’s da Vinci system are less likely to need blood transfusions or experience complications, and they typically have shorter hospital stays. One meta-analysis found that da Vinci patients had a 56% lower risk of conversion to open surgery, as well as significantly reduced readmission and mortality rates. Beyond clinical outcomes, there are clear economic benefits for hospitals. While the upfront cost of a surgical robot is significant, minimally invasive procedures can reduce total healthcare expenditures over time. Patients require less follow-up care and are less likely to be readmitted, while hospitals benefit from shorter stays and improved operational efficiency. These advantages can help offset labor shortages and cost pressures, making robotic-assisted surgery increasingly attractive from a financial perspective. As more evidence highlights both clinical and economic value, and as the need to cut long-term costs grows, hospitals are likely to continue shifting capital toward robotic systems. Intuitive Surgical, as the clear market leader, is well-positioned to benefit from these structural trends.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 6,42, which is from the year 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 17,9% in the next five years, but 15% is the highest I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on Intuitive Surgical's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $192,60. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Intuitive Surgical at a price of $96,30 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 2.415, and capital expenditures were 1.111. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 778 in our calculations. The tax provision was 336. We have 356,2 outstanding shares. Hence, the calculation will be as follows: (2.415 – 778 + 336) / 356,2 x 10 = $55,39 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Intuitive Surgical's free cash flow per share at $3,66 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $57,78.

Conclusion

I believe that Intuitive Surgical is an intriguing company led by strong management. The company benefits from a wide moat supported by its market leadership, recurring revenue model, integrated technology, and deep surgeon loyalty. In 2024, Intuitive Surgical achieved its highest ROIC since 2021, and further growth is expected. It also generated record-high free cash flow, and with capital expenditures set to decline, margins are likely to improve as early as 2025. However, competition is a key risk. Well-capitalized players are entering the robotic surgery market with lower-cost systems and alternative business models, which could put pressure on pricing and lengthen the sales cycle. This is particularly evident in key markets like China, where local competitors are gaining traction and regulatory approvals. Macroeconomic conditions also pose a risk. High inflation, elevated interest rates, and tighter hospital budgets can delay capital purchases and reduce procedure volumes. These factors not only slow system placements but also impact Intuitive Surgical’s recurring revenue from instruments and services. Regulatory challenges are another concern. Intuitive Surgical must navigate a complex and evolving set of requirements across different markets. Stricter approval processes, potential delays, and the risk of compliance issues can increase costs and disrupt operations. On the positive side, a growing installed base is a strong reason to invest. Each new system placed in a hospital generates high-margin, recurring revenue through the use of consumables and ongoing service contracts. As more hospitals expand their use of da Vinci systems, Intuitive Surgical becomes further embedded in clinical workflows, raising switching costs and paving the way for future product adoption. Innovation is also a key strength. The company continually enhances its platforms - most recently with the launch of the da Vinci 5 system in 2024 - and expands into new surgical procedures. These advancements increase the utility of its systems and support long-term growth. Finally, industry tailwinds provide a solid foundation. Robotic-assisted surgery is one of the fastest-growing areas in medical technology, yet it remains underpenetrated, with only around 5% of global surgeries currently performed using robotics. As healthcare systems seek better outcomes and cost efficiencies, and as surgical demand rises with aging populations, Intuitive Surgical is well-positioned to benefit. In summary, I believe Intuitive Surgical is a fantastic company. Buying shares at its intrinsic value, with a margin of safety at $192, would represent a solid long-term investment.

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