ISRG Margin Outlook Dips on Tariffs, Demand Signals Stay Strong

Core Insights - Intuitive Surgical (ISRG) reported a 19% year-over-year revenue growth in Q1 2025, reaching $2.25 billion, driven by a 17% increase in da Vinci procedures and a 58% increase in Ion procedures [1][7] - The company revised its full-year gross margin guidance down to 65%–66.5% from approximately 69.1% in 2024, primarily due to an estimated 170 basis point impact from higher U.S.–China tariffs [1][7] - Despite the margin adjustment, Intuitive Surgical maintains a strong financial position with around $9 billion in cash, supporting ongoing investments in innovation and infrastructure [3][7] Company Positioning - The long-term concern for Intuitive Surgical is the potential impact of tariff volatility on its cost structure, particularly as the da Vinci system relies on a global supply chain of high-spec components [2] - Management has not indicated any plans for supply chain reshoring, which could mean that the gross margin impact may persist if trade tensions continue [2] - The company’s recurring revenue base is stable and growing, with procedure volumes expanding at a healthy pace [3] Peer Comparisons - Medtronic (MDT) anticipates a gross impact of $700–950 million from U.S.–China tariffs in fiscal 2026 but aims to offset $500–600 million, resulting in a net cost of goods sold (COGS) impact of $200–350 million [4] - Zimmer Biomet (ZBH) expects a $60–80 million tariff-related drag on its 2025 operating profit, with mitigation strategies in place to manage near-term cost pressures [5] Valuation and Estimates - Intuitive Surgical trades at a forward price-to-sales ratio of 18.43, which is above the industry average but lower than its five-year median of 19.23 [9] - The Zacks Consensus Estimate for Intuitive Surgical's 2025 earnings suggests a 6.8% increase from the previous year [11]