It’s no secret that many growth stocks across the pond are currently trading at crazy valuations (ahem, Palantir). Yet I still think there are some opportunities emerging for patient long-term investors. Here’s one falling S&P 500 share in my ISA that I’m keeping an eye on.
Market leader
Intuitive Surgical (NASDAQ: ISRG) is a stock I’ve owned for years. The company pioneered the field of robotically-assisted surgery with its flagship da Vinci system. According to various sources, it commands an estimated 60% share of the global robotic surgery market.
Compared to traditional surgery, this method often leads to shorter hospital stays, reduced pain, and faster healing due to smaller incisions and enhanced control systems. The robotic arms filter out a surgeon’s natural hand tremors.
An increasing number of hospitals now lease rather than buy systems outright. But either way, they still pay for the disposable instruments needed to operate them. This razor-and-blades model generates sticky, recurring revenue. Indeed, 84% of the firm’s $8.35bn in revenue last year was recurring (including operating leases).
Moreover, once surgeons are trained, hospitals tend not to switch, giving Intuitive a wide moat (high switching costs).
Tariff headaches
However, these wide-moat shares usually command a high premium. And that’s why I tend to wait patiently for rare dips in Intuitive Surgical’s share price to add to my position.
As such, a 26% drop since February has caught my eye. Buying on these types of dips has worked out well for investors in the past.
But why is the stock down? It’s mainly due to tariffs, as the company manufactures in Mexico. During a recent healthcare investor event, management said it expects a 100 basis point margin hit this year. But it could be higher in 2026, assuming nothing changes.
The sweeping tariffs are obviously a nightmare for lots of companies. Adding to the confusion is whether they’re even legal, with US courtroom battles ongoing.
Management confirmed it has things to mitigate any future impact, including price increases as a last resort. Over the medium term, it’s targeting a 70% gross margin, up from a forecast 66% this year. But clearly on-off tariffs are an ongoing challenge.
Watching closely
According to Yahoo Finance, the stock’s five-year price-to-earnings-to-growth (PEG) ratio is 2.7. While that’s above the conventional benchmark for perceived fair value (1), it’s a significant discount to previous years.
Perhaps that’s warranted given the uncertainty, but it doesn’t really change the longer-term outlook for me. The global robotic surgery addressable market remains very large, with both volume and type of procedure likely to grow significantly.
In Q2, worldwide da Vinci procedures increased 17% year on year, with 10,488 systems installed globally (up 14%).
Meanwhile, the firm has launched the fifth generation of its da Vinci surgical system. With 10,000 times the computing power of previous models, this has advanced artificial intelligence (AI) capabilities, including processing real-time data to give surgeons AI-driven insights during procedures.
Admittedly, the stock isn’t anywhere near bargain territory yet. But Wall Street does have a 12-month price target of $593, which is 31% higher than the current $453 share price.
I’m watching it closely. If Intuitive Surgical falls towards $400, then I will buy a few more shares. Investors looking for a leading robotics stock might want to take a closer look themselves.
