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

You may have come into contact with Intuitive Surgical (NASDAQ: ISRG) without even realizing it -- for example, if you've had a hernia repair or another type of minimally invasive surgery. Intuitive Surgical is the maker of the world's leading surgical robot, the Da Vinci system, which assists surgeons across many common procedures. This dominance has helped the company deliver earnings growth and stock performance over time.

Intuitive Surgical has an extremely strong moat, or competitive advantage, and it may be getting even stronger. This means the company may not face the threat of competition any time soon -- and this is excellent news for the earnings picture and for investors. Is Intuitive Surgical the closest thing to a "forever" stock? Let's find out.

Image source: Getty Images.

The Da Vinci surgical robot

So, first, let's consider the company's flagship product and its path so far. Intuitive Surgical offers the Da Vinci platform in four different versions, from a value-oriented product to the latest update, the Da Vinci 5. This latest Da Vinci includes more than 150 design innovations and 10,000x more computing power than the previous release. The new features offer strengths in areas like surgeon autonomy and operating room workflows. In the first quarter of this year, Da Vinci 5 placements totaled 232 -- that's up from 147 in the year-earlier period, showing momentum for this new product.

Intuitive Surgical's moat is particularly strong for a few reasons. Most surgeons have trained on the Da Vinci system, so we could imagine that they would prefer using this system, one they know well. The Da Vinci also represents a million-dollar purchase for hospitals, so once a hospital has committed to the platform, it likely will aim to stick with it to amortize the investment. Finally, a Da Vinci is deeply integrated into operating room operations, making it time-consuming and costly to switch to an alternate platform.

Now it might surprise you when I say that a new entrant to the market actually makes Intuitive Surgical's moat stronger. Medtronic won clearance late last year for its Hugo system for urologic surgical procedures. Importantly, Medtronic has emphasized that the Hugo may represent another "choice" for these surgeries -- so the company isn't positioning its product as a better option than the Da Vinci.

A broad presence worldwide

It's also important to note that Intuitive Surgical's broad presence in operating rooms worldwide and the numerous procedures that may be performed with the Da Vinci further secure its market leadership. So, Medtronic's Hugo does offer hospitals an alternative in urology, but this doesn't represent a threat to the Da Vinci's position. In fact, this highlights the strength of Intuitive Surgical's moat.

In the latest quarter, Intuitive Surgical said it grew its Da Vinci installed base to 11,395 systems, for a 12% increase year over year. Da Vinci procedures worldwide climbed 16%, and this is an important figure because the more hospitals use the platforms, the more the company generates revenue. This is because these hospitals invest in accessories and instruments needed for the procedures.

Where most of Intuitive Surgical's revenue comes from

And that leads me to another point to like about Intuitive Surgical. The robotic surgery giant actually makes more of its revenue through accessories and instruments than it does from selling robotic surgical systems. This is positive because it means that every platform sold or leased generates recurring revenue for the company -- and at considerably high levels. For example, in the latest quarter, revenue from accessories and instruments totaled $1.6 billion. That's compared to revenue of $650 million from the sales of systems. And Intuitive Surgical also generates considerable revenue from the sales of service contracts to support the robotic systems. In the quarter, these services represented $433 million in revenue.

All of this means that you can count on a certain steady progression in Intuitive Surgical's earnings growth over time -- and this is set to continue as the company's moat is stronger than ever. In my book, this makes Intuitive Surgical just about as close as you can get to a "forever" stock, or one you may want to hold onto for a lifetime.

Adria Cimino has no position in any of the stocks mentioned. 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.