Part one ended with a question I couldn’t answer yet. Eight reasons to own this business, stress-tested one by one, and a stock down roughly 40% from its high with two credible competitors finally selling robots in the United States.
Was the market repricing a temporary slowdown, or correctly recognizing that the monopoly years are over?
Answering that required going deeper into the underlying engine itself, so part two starts in 1995 with a prototype named after Leonardo da Vinci and ends with a valuation model tying everything else together.
A few things surprised me along the way too. The most consequential product in Intuitive’s history probably isn’t da Vinci 5, and the most consequential decision wasn’t a product at all.
The metric I worry about most has declined in four of the last five years, and it happens to be the one thing management’s long-term pay doesn’t depend on.
Here’s what part two covers (another 10,000-word analysis):
Business History
The DARPA-funded battlefield research that became a business
Lenny, Leonardo, Mona, and a $314.5 million IPO before FDA clearance
The patent war that ended in a merger, and why I call it the most important decision in company history
Five generations of the same idea, and which machine I’d argue mattered most
The ten-year gap that explains today’s upgrade cycle
How Intuitive turned third-party staplers into a billion-dollar business
The key KPIs to track, and the flywheel connecting them
Plus: The one metric you have to calculate yourself, because Intuitive won’t hand it to you
Whether 40% operating margins are a feature of the industry or of a monopoly inside it
The Getty test: what’s certain about 2046 and what isn’t
China, where domestic makers took half of 2025 procurement
Dave Rosa’s thirty-year path to CEO
What management is paid to deliver, and the gap I spotted in the incentive plan
Insider ownership
Identifying key growth drivers and assigning a revenue growth contribution range to each
Where margins settle, and why management has capped its own upside on purpose
Stock-based compensation, and what free cash flow looks like after it
Base rates from Mauboussin, anchoring the inside view to the outside view
My full valuation model, with a download link so you can change my assumptions
Closing thoughts
One note before you start: If you haven’t read part one, the eight pillars of the hypothesis and the falsification tests attached to each can be found there (linked below), and I refer back to them throughout.
Part two works on its own, though you’ll get more out of it with part one in mind.
Read part 1 here:
Deep Dive: Intuitive Surgical ($ISRG) – The World’s Best Medtech Business on Sale?
Before robots, surgeons fought their own instruments.
The full analysis starts here!
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