Intuitive Surgical's Earnings Rally Masks Persistent Valuation Overhang

What happened

Intuitive Surgical, a leader in surgical robotics, recently reported strong third-quarter earnings for 2025, as highlighted in a new article. The company achieved Q3 revenue of $2.51 billion, with product revenue up 23% and service revenue up 20% year-over-year, driven by robust da Vinci and Ion procedure growth. This performance triggered a swift stock rally, reflecting investor optimism about the company's growth trajectory and da Vinci 5 rollout. However, the DeepValue master report cautions that the stock remains severely overvalued, trading at approximately 71 times trailing earnings and more than 10 times a conservative discounted cash flow estimate. Despite the earnings strength, underlying risks such as GLP-1 drug impacts on bariatric volumes, intensifying competition, and margin pressures from tariffs and depreciation persist, keeping the investment thesis skewed toward caution.

Implication

The stock's rally on strong earnings may attract short-term interest, but it does not mitigate the fundamental valuation gap or mounting operational risks. At ~71x P/E, there is minimal margin of safety against potential slowdowns in procedure growth or margin erosion from tariffs and competition. GLP-1 drugs continue to pressure bariatric procedure volumes, a key growth driver, while competitors like Medtronic and J&J are ramping up efforts to capture market share. Existing holders should consider trimming positions to reduce exposure to multiple compression risks, as the stock already prices in near-perfect execution. New capital would be better deployed waiting for a more attractive entry point, such as a valuation reset closer to high-quality med-tech peers or clear evidence of sustained margin stability and competitive resilience.

Thesis delta

The new article confirms Intuitive's operational strength and recent stock rally but does not alter the core 'POTENTIAL SELL' thesis from the DeepValue report. The rally may even exacerbate overvaluation risks by further embedding optimistic growth assumptions into the price, without addressing the well-flagged headwinds like GLP-1 impacts and competition. Thus, the thesis remains unchanged, emphasizing caution due to limited downside protection and high sensitivity to any execution missteps.