SWI Pick #23 - Intuitive Surgical (ISRG)
Deep moats from early lock-ins to an integrated ecosystem of hardware, software and data. Understand the company like owners.
Hi, sleep well, investors,
To start 2026, I have selected the best of the best. The bar is incredibly high, and by 2037, I would like my daughters to own only businesses like this. This deep dive will help you understand the business like an owner.
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A sleep well business, to me, is irreplaceable. Its existence elevates the lives of end users and customers and operates in harmony with suppliers and regulators. When it’s gone, the community it builds around it would feel deep pain. Importantly, competitors can’t quite figure out a way to break in. Therefore, the business enjoys the advantage of generating consistent, growing free cash flow per share. However, what makes the business sleep well is also its ability to adapt, and the excess it purposely puts away to withstand the inevitabilities of external shocks and competition.
Intuitive Surgical (ISRG), a $185B leader in the robotic-assisted surgical market, ticks many of those boxes. However, there are serious emerging risks, and the price we pay (~80x FCF) today may only yield satisfactory returns over 10+ years if certain growth opportunities are realized.
Content of the deep dive
Executive summary
How is it a sleep well investment for 2037?
irreplaceability - product relevance
business model - predictability
moats and barriers to entry - early ‘lock-ins’
competition - old and new
anti-fragility - endurance
opportunities
management
Risks - what can go wrong
Valuation and execution
Sleep well scores
Executive summary
I am eyeing owning part of Intuitive Surgical because:
It has been a poster child for the industry as a pioneer since its founding and is now a standard of care in multiple complex surgical procedures.
60%-80% market share in total robotic-assisted surgeries, with at least a decade's head start compared to imitators.
The market position is nearly impenetrable thanks to multi-layered switching costs cultivated very early in the customer acquisition phase, a vertically integrated business, and high barriers to entry—perhaps the most ‘moaty’ businesses I have come to learn.
High predictability of revenue, as every robot system sale brings 7-10 years of recurring consumables and service revenue.
Multiple ways to prolong its double-digit FCFPS growth, including expanding procedures, system and instrument categories, geography, and occasionally breakthrough technologies.
Highly AI-proofed and has $5B of cash with another $4B in long-term investments and no debts to buffer unknowns.
Most importantly, Intuitive Surgical's success enhances the quality of life for people around the world.
I have spent months in the hospital with my daughter and gone through surgeries. I see why robotic surgeries are the preferred choice, not only better outcomes for us but also for the surgeons, hospitals, and the healthcare system.
Intuitive Surgical creates value for all parties involved.
Let’s dive into the company and why it could be a sleep well investment.
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