Key Takeaways ISRG Q2 top line beat estimates but shares fell 7% on tariff impact, cost inflation, and margin pressure.ISRG flagged CapEx risks, shifting procedure mix, and rising expenses as near-term challenges.ISRG sees growth from da Vinci 5 adoption, new approvals, and long-term telesurgery potential.Intuitive Surgical (ISRG) posted second-quarter fiscal 2025 results on July 22. It delivered a solid top-line beat and healthy procedure growth, but shares have lost more than 7% since the release. While o ...

Core Insights - Intuitive Surgical (ISRG) reported a second-quarter 2025 gross margin of 67.9%, down from 70% in the prior-year period, indicating structural shifts in operations and product mix [1][9] - The margin contraction is driven by the increasing contribution of newer, lower-margin platforms, particularly the da Vinci 5 and Ion systems, which have higher manufacturing and service costs [2][5] - Depreciation from recent capacity investments, including a new facility in Bulgaria, adds overhead costs, impacting short-term margins [3][9] - Tariff-related expenses reduced gross margin by approximately 60 basis points in Q2, with an expected annual drag of about 100 basis points [4][9] - Management anticipates long-term margin recovery through scale efficiencies and increased procedure volumes, despite near-term volatility [5][9] Peer Performance - Boston Scientific (BSX) reported an adjusted gross margin of 69.4%, down 100 basis points year over year, primarily due to inventory charges, but benefited from a favorable product mix [6] - Thermo Fisher (TMO) had an adjusted gross margin of 41.3%, down about 80 basis points, impacted by tariffs and foreign exchange, though productivity gains helped cushion the decline [7] Valuation and Estimates - ISRG shares have lost 5% year-to-date, compared to the industry's decline of 6.8% [8] - The forward price-to-earnings ratio for ISRG is 56.6, above the industry average but lower than its five-year median of 72.4 [11] - The Zacks Consensus Estimate for ISRG's 2025 earnings implies an 11.3% rise from the previous year [12]

Core Insights - Palantir Technologies is currently valued at $269 billion, but analysts believe Intuitive Surgical and ServiceNow could surpass this valuation by 2026 [1] Intuitive Surgical - Intuitive Surgical is a leader in robotics-assisted surgery, known for its da Vinci systems, which enhance precision in minimally invasive procedures across five surgical areas [3][7] - The company operates on a razor-and-blade business model, where surgical systems are the razors and consumable tools are the blades, creating a steady revenue stream [4] - In Q1, Intuitive Surgical reported a 19% revenue increase to $2.2 billion, driven by growth in da Vinci procedures and system placements, with non-GAAP earnings rising 21% to $1.50 per diluted share [5] - Morgan Stanley analyst Patrick Wood set a bull-case target price of $850 per share for Intuitive Surgical, indicating a 64% upside from its current price of $517, leading to a potential market value of $304 billion [6] - Recent FDA approvals allow da Vinci systems to perform more colorectal surgeries, suggesting a larger total addressable market and potential for faster growth [8] - Wall Street anticipates adjusted earnings growth of 10% annually through 2026, but Intuitive Surgical has historically beaten estimates by an average of 14% [9] - If earnings grow at 28% annually through Q3 2026, the market value could reach $270 billion without changes in the P/E ratio, though current shares trade at 68 times earnings, indicating a high valuation [10] ServiceNow - ServiceNow specializes in workflow management software, particularly in IT service management and AI for IT operations, and introduced generative AI features in 2023 [11] - The company reported an 18% revenue increase to $3 billion in Q1, with non-GAAP net income also rising 18% to $4.04 per diluted share, attributed to its strong position in enterprise-grade AI [12] - Wall Street expects ServiceNow's adjusted earnings to grow at 19% annually through 2026, with the company beating consensus estimates by an average of 7% over the last six quarters [12] - If this trend continues, trailing-12-month earnings could reach $20.10 per share, leading to a potential share price of $1,325, implying a 39% upside from the current price [12] - In this scenario, ServiceNow's market value could reach $275 billion by Q3 2026, surpassing Palantir's current valuation, although the current valuation is considered expensive for the expected growth rate [13]