Intuitive Surgical's Moat Is Getting Stronger -- Is This the Closest Thing to a 'Forever' Stock?

Intuitive Surgical (NASDAQ: ISRG) hasn't been a great stock to own this year. The company's shares have declined 19% to date. However, a lot is going on behind the scenes with the medical device leader that investors should pay attention to.

A strengthening economic moat

Let's first review the basics of Intuitive Surgical's business. The company develops and markets robotic-assisted surgery (RAS) devices. Intuitive Surgical's best-known product is the da Vinci system, a robotic surgical device that is currently in its fifth iteration and approved for minimally invasive soft-tissue procedures across general surgery, gynecology, urology, and more. Intuitive Surgical dominates its niche of the medical device industry. The da Vinci system was one of the first of its kind and has been on the market since 2000. Over the past 26 years, Intuitive Surgical has grown its installed base of da Vinci systems significantly. As of the first quarter, it was 11,395 and increased 12% year over year.

Image source: The Motley Fool.

Further, the da Vinci system is routinely used to train surgical residents. In other words, it is deeply embedded in the healthcare ecosystem in the U.S. That grants Intuitive Surgical a powerful economic moat from high switching costs. And as the company's installed base expands, its moat only gets stronger. A higher number of da Vinci systems on the market means more procedures, and more data and feedback from real-world situations to improve its technology.

It also leads to stronger revenue. Intuitive Surgical generates significant sales from disposable instruments and accessories, which have a relatively short life span and need to be replaced fairly regularly. That creates a source of relatively high-margin (compared to device sales) recurring revenue for Intuitive Surgical.

A forever stock?

Why, then, has the healthcare giant performed so poorly this year, and for that matter, over the past 12 months? Here are three reasons. First, steep tariffs are impacting Intuitive Surgical's financial results. The company's guidance for the fiscal year 2026 includes a 1% revenue hit from tariffs. That's not catastrophic, but things could get worse over the medium term. Second, Intuitive Surgical's shares aren't cheap. The company is trading at 43.5x forward earnings, versus the healthcare sector's average of 16.8x.

Third, growing competition in the RAS market, notably from Medtronic, is threatening to erode its competitive advantage. That said, there are also arguments in favor of Intuitive Surgical, even beyond its moat. One of them is that the RAS niche is underpenetrated. And over the long run, it should expand meaningfully as the world's population ages, since the elderly are more likely to need many of the procedures it offers with the da Vinci system.

Also, the company's installed base and procedure volume growth will drive higher sales of higher-margin instruments and accessories, boosting the top and bottom lines. The question, then, is whether Intuitive Surgical can overcome its challenges, including tariffs and competition. My view is that it can. Even relatively small price increases across its large installed base could help offset the negative impact of tariffs. Intuitive Surgical can afford to do that thanks to its dominant market position and proven technology, which has been shown, time and time again, to improve patient outcomes in real-world procedures. What about competition?

Although it will intensify, Intuitive Surgical already has a runaway lead. It will be a while before competing devices pose a serious challenge -- Medtronic's Hugo system is only cleared for urologic procedures in the U.S. so far. Further, the RAS market's expansion means there is ample room for multiple winners. And Intuitive Surgical should also continue innovating. The fifth generation of the da Vinci system, first approved in 2024, had brand-new features that older versions didn't have, and it has enjoyed strong adoption.

Lastly, is Intuitive Surgical attractive at current levels? The stock has historically not been cheap, and in my view, the company deserves a premium given its lead in a large, underpenetrated, and fast-growing market. Investors intending to hold onto Intuitive Surgical's shares forever can purchase them right now. They could be glad they did so down the road, as the medical device specialist has many of the qualities of a forever stock.

Prosper Junior Bakiny has positions in Intuitive Surgical. The Motley Fool has positions in and recommends Intuitive Surgical and Medtronic. The Motley Fool recommends the following options: long January 2028 $520 calls on Intuitive Surgical and short January 2028 $530 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.