The list of companies with market caps of $1 trillion or more remains extremely short. However, there's little doubt that more companies will join this elite group over the coming decades. Essentially, that means companies that have plausible chances of reaching that milestone, but still reasonably far from it, should deliver excellent returns to investors with long-term horizons.
One such company is Intuitive Surgical (ISRG -4.12%). The medical device specialist's market cap currently tops $215 billion, meaning it would need to achieve a compound annual growth rate of 10.8% to hit the trillion-dollar mark by 2040. That would be no easy task -- but it's well within Intuitive Surgical's capacity.
The leader in robotic-assisted surgery
Surgeries take a toll on patients since they involve damaging body tissue. Robotic-assisted surgeries mitigate some of the downsides. These types of procedures are performed using tiny and highly maneuverable instruments that avoid the need for the large incisions required for traditional open surgeries. Robotic-assisted surgeries result in less bleeding, less scarring, faster recoveries, and shorter hospital stays.
Intuitive Surgical's da Vinci system is perhaps the best-known robotic device on the market. Though its first version was cleared for use in the U.S. in 2000, Intuitive Surgical has worked hard in the past 25 years. In 2024, it introduced the fifth generation of its crown jewel system. As of the end of the third quarter, Intuitive Surgical had an installed base of 9,539 da Vinci systems, a 15% year over year increase. While estimates vary, Intuitive Surgical holds a roughly 57% share of the robotic-assisted surgical equipment market, according to some analysts.
The company has benefited from its leading position to grow its revenue, earnings, and stock price at a torrid pace over the past 20 years.
ISRG Revenue (Annual) data by YCharts.
A strong moat and a massive runway for growth
Intuitive Surgical's prospects from here are excellent. Consider that, as of early 2023, less than 5% of eligible surgeries were performed robotically. While the percentage of such procedures performed robotically will probably never reach 100%, considering the method's benefits, it could reasonably rise to something like 20%. That would be a quadrupling of its business even if the total number of surgeries remains static year after year, which it won't since the average age of the world's population is increasing. All that is to assive long-term growth potential.
Competition could impact the company's progress. Intuitive Surgical shares the robotic-assisted surgery market with well-established medical device giants such as Stryker. Others such as Johnson & Johnson and Medtronic want to dip their toes in these waters, too. So, the field will get more crowded. Regardless, Intuitive Surgical should be able to perform well for three reasons.
First, companies such as Johnson & Johnson and Medtronic will still have to spend some time and money developing and testing their respective devices, and then pursuing regulatory clearance for them to be used in specific procedures. That's no simple task. Intuitive Surgical has already done this work and has a first-mover advantage.
Second, Intuitive Surgical benefits from high switching costs. A da Vinci device is a significant investment for a hospital. Training staff on the machine takes time and money, too. That's why it's easier for them to fix the da Vinci system if there is a problem with it -- a service Intuitive Surgical provides -- instead of switching to a different system.
Third, Intuitive Surgical is an innovator. The company is making strides, albeit relatively small ones for now, in artificial intelligence (AI). We can expect the healthcare giant to make progress in developing newer and better iterations of the da Vinci system and on other fronts, including AI. That will help it remain one of the leaders in robotic-assisted surgeries.
Buy and forget
In the past 25 years, Intuitive Surgical's compound annual growth rate has been more than double what it would need to achieve from here to become a trillion-dollar stock by 2040.
ISRG Total Return Level data by YCharts.
A lot has changed since 2005, but the company still has many of the qualities needed to earn outsized returns over the long run: A strong moat, strong growth avenues, and leadership in its industry. In short, Intuitive Surgical is an excellent healthcare stock to hold for investors with long time horizons.
