Can ISRG Continue Its Strong Growth Amid Tariff & Rare Earth Woes?

Although Intuitive Surgical ISRG delivered better-than-expected performance during second-quarter 2025, its shares have continued to decline. ISRG stock has moved down 14.9% in the past three months, underperforming its industry’s decline of 4.7%, likely due to rising uncertainty amid tariff concerns and potential supply-chain disruptions due to Chinese restriction on rare earth minerals.

The global landscape for medical device manufacturers is undergoing rapid change, with recent U.S. tariffs targeting Chinese-made components and China’s restrictions on rare earth mineral exports presenting new challenges, especially for leaders in robotic surgery, including Intuitive Surgical and its peers — Stryker SYK and Globus Medical GMED. These companies depend heavily on specialized electronics, high-performance sensors, and precision magnets, many of which use rare earth elements predominantly sourced from China.

For ISRG, new tariffs have already begun to squeeze profit margins and raise production costs, directly impacting its ability to compete and innovate in a market that relies on volume growth and recurring revenues. At the same time, tightening rare earth supplies threaten to disrupt ISRG’s supply chain, delay product launches, and complicate long-term planning, given the critical role of these materials in the da Vinci platform’s robotic systems.

Three-Month Performance

Let us delve deeper and analyze Intuitive Surgical’s fundamentals to find whether it can overcome its declining trend amid rising headwinds.

Tariffs Cast a Shadow on ISRG’s Growth Outlook

Intuitive Surgical delivered a solid second quarter with 21% revenue growth and strong international procedure momentum, yet management struck a cautious note on trade headwinds. The company disclosed that tariffs shaved roughly 60 basis points off its gross margin in the second quarter and are expected to reduce 2025 profitability by about 1% of revenues. While this impact is lower than earlier estimates, executives warned that the trade environment may remain highly uncertain.

Current assumptions are sobering — imports from China to the United States carry a 30% tariff, while goods shipped from the United States to China face a 10% levy. Imports from other countries are also taxed at 10%, though USMCA-compliant trade with Mexico and Canada remains exempt.

The sequential burden is set to grow as tariff expenses filter through inventory into cost of sales, making the headwind more pronounced in subsequent quarters. Moreover, President Trump’s recent announcement of 100% tariffs on China, effective Nov. 1, further raises uncertainty.

To offset these pressures, Intuitive Surgical is expanding its global manufacturing footprint, opening a new facility in Bulgaria and planning further capacity in Germany and Mexico. While the company’s innovation pipeline and procedure growth remain robust, tariffs introduce a volatile variable that could temper margin expansion and complicate its long-term growth trajectory.

ISRG’s anticipated top and bottom-line growth in 2025 is likely to be slower compared to 2024, potentially reflecting uncertainties, including tariffs.

Sales & Earnings Estimate

Rare-Earth Restrictions May Squeeze ISRG’s Margins Further

As the global medical device industry faces mounting geopolitical headwinds, Intuitive Surgical,  the frontrunner in robotic-assisted surgery, finds its future increasingly shadowed by China’s new restrictions on rare earth mineral exports. These critically important elements, such as neodymium and yttrium, are foundational to the da Vinci platform’s sophisticated motors, sensors and imaging parts. China’s near-monopoly in rare earths, now weaponized through constrained supply, poses acute risks for ISRG’s manufacturing continuity and innovation pipeline.

The most immediate threat is to ISRG’s supply-chain resilience. Delays or sudden shortages in rare earth components could slow down production, disrupt new device launches, and impair service schedules for hospitals — a scenario with direct consequences for revenue growth and market share. Compounding the crisis, constrained supply will raise material costs, squeezing margins already pressured by recent U.S. tariffs on Chinese imports. While smaller players may struggle to survive, even ISRG, despite its scale and bargaining power, has few near-term alternatives for medical-grade rare earth supplies.

For investors, these risks extend beyond short-term cost spikes; they introduce longer-term uncertainties over ISRG’s ability to scale its market dominance, execute its product roadmap, and preserve the robust growth trajectory that has defined its record to date. In a sector built on technological precision, the rare earth supply crunch is a strategic threat that cannot be ignored.

ISRG, on its second-quarter earnings call, mentioned that it expects adjusted gross margin within a range of 66% and 67% of revenues, implying a contraction of 210-310 basis points from the 2024 level. Moreover, adjusted operating expense is likely to grow 10-14% in 2025. We expect these headwinds to increase with rising uncertainties.

Peer Comparison

Stryker and Globus Medical are similarly exposed. Stryker’s Mako robotic platform and Globus Medical’s ExcelsiusGPS system require precision motors, sensors, and navigation technologies that depend on rare earth minerals. Tariffs and export curbs increase operational costs, slow device rollout, and (may) reduce price competitiveness versus global rivals. Overall, rising barriers and supply risks are reshaping the outlook for leading U.S. surgical robotics companies, with technology leadership now tied closely to their ability to manage global trade and resource constraints.

Valuation Looks Expensive

Valuation wise, Intuitive Surgical is overvalued, as suggested by the Value Score of D.

In terms of forward 12-month Price/Earnings (P/E), ISRG shares are trading at 50.56X, higher than the sector’s 27.51X.

ISRG Forward P/E Multiple

Conclusion

Intuitive Surgical’s strong fundamentals and leadership in robotic-assisted surgery remain intact, but the convergence of tariffs and rare earth supply risks is reshaping its risk profile. Investors must weigh the company’s proven ability to scale procedures and expand its product portfolio against external pressures that could erode margins and delay innovation.

With tariffs already trimming profitability and China’s export curbs on rare earth minerals threatening key components, ISRG’s cost base and supply-chain resilience are under scrutiny. While management is proactively diversifying manufacturing to Europe and Mexico, such initiatives will take time to materially reduce exposure. In the near term, earnings volatility may increase, as top and bottom-line growth moderate from prior-year levels.

For long-term investors, ISRG’s strategic adaptability and market dominance remain compelling, but navigating global trade and resource headwinds will be critical to sustaining its trajectory.

ISRG currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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