Here's What Happened to Inspire Medical (INSP) in Q3

Headwaters Capital Management, an investment management company, released its third-quarter 2025 investor letter. A copy of the letter can be downloaded here. The third quarter results were mainly focused on AI. The portfolio returned -2.7% (-2.9% net) in the quarter compared to a +5.3% gain for the Russell Mid Cap Index. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its third-quarter 2025 investor letter, Headwaters Capital Management highlighted stocks such as Inspire Medical Systems, Inc. (NYSE:INSP). Inspire Medical Systems, Inc. (NYSE:INSP) is a medical technology company that focuses on the development and commercialization of minimally invasive solutions for patients with obstructive sleep apnea. The one-month return of Inspire Medical Systems, Inc. (NYSE:INSP) was -3.86%, and its shares lost 60.95% of their value over the last 52 weeks. On October 13, 2025, Inspire Medical Systems, Inc. (NYSE:INSP) stock closed at $77.68 per share, with a market capitalization of $2.297 billion.

Headwaters Capital Management stated the following regarding Inspire Medical Systems, Inc. (NYSE:INSP) in its third quarter 2025 investor letter:

"Top Detractor: Inspire Medical Systems, Inc. (NYSE:INSP) -43%. Inspire has been a frustrating stock all year. The company has mismanaged the roll out of their next generation sleep apnea device in every way imaginable. Insurance coverage, inventory management, MD training and guidance to the street have all been issues. Compounding these self inflicted wounds have been investor fears over GLP-1 weigh loss drugs causing reduced demand for sleep apnea treatments and the threat of competition entering the market in 2H 2025. It has been impossible for investors to discern which factors are the root cause of decelerating revenue growth (likely a combo of each of these factors). Despite all of these issues, revenue is still growing in the +8-10% range in 2H 2025, and this growth is negatively impacted by the burn down of old inventory. I think revenue growth approximating +10% is a reasonable assumption for 2026. With the stock today trading at only 2x 2025 revenue, 33% of the company’s market cap in cash and the company generating free cash flow, there doesn’t appear to be much downside from here. M&A multiples range from 4-7x revenue depending on your revenue growth assumptions and the Inspire device is a quality med tech asset that is well regarded by patients in a massive global market."

Inspire Medical Systems, Inc. (NYSE:INSP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held Inspire Medical Systems, Inc. (NYSE:INSP) at the end of the second quarter, which was 37 in the previous quarter. In Q2 2025, Inspire Medical Systems, Inc. (NYSE:INSP) reported revenue of $217.1 million, an 11% increase from Q2 2024. While we acknowledge the potential of Inspire Medical Systems, Inc. (NYSE:INSP) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Inspire Medical Systems, Inc. (NYSE:INSP) and shared the list of stocks Jim Cramer discussed. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.