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After initially cutting down on their holdings of Intuitive Surgical (ISRG +5%) following lowered FY25 gross margin guidance, investors reversed course, pushing the stock firmly higher today. The key development that flipped sentiment was President Trump's softened stance on China tariffs. The president noted that the current 145% reciprocal tariffs which are set to go into effect following the end of the ongoing 90-day pause would come down substantially if the U.S. and China can reach a deal.

The shift in stance is significant as ISRG, a robotic surgery equipment maker, stated last night that as a result of the 145% tariffs on China, where it imports numerous components into the U.S. for the manufacture of its products, its non-GAAP gross margins would come in at around 65.0-66.5% in FY25, down from its previous forecast of 67.0-68.0%. Management also warned that hospitals could encounter financial pressures due to tariffs, which would lead to a global reprioritization of capital budgets.

With these tariffs set to possibly come down, investors are speculating that ISRG can reach its previous margin guidance. When coupling this with the several uplifting trends from Q1, the stock is heading back toward April highs today.

• Headline earnings and revenue performance were sound in Q1, coming in at $1.81 and $2.25 bln, a 19.2% jump yr/yr, respectively, both exceeding analyst forecasts. Worldwide da Vinci procedure growth stayed in double-digit territory at +17%, tracking above ISRG's previous +13-16% guidance.
• Procedure growth was led by general surgery in the U.S. alongside regional performance in India, Korea distribution markets, and the U.K. ISRG's placements were similarly robust, placing 367 da Vinci systems in the quarter, including 147 da Vinci 5 systems, the company's newest surgical system. Utilization, which measures procedures per installed system, inched 2% higher yr/yr in the quarter for ISRG's multi-port platforms, 26% for its single-port (SP) platform, and 5% for Ion, its minimally invasive bronchoscopy platform.
  • Further on the rollout of da Vinci 5, ISRG noted that it is progressing within expectations and looks forward to a broad launch of the system over the next quarter.
• Looking ahead, ISRG raised its FY25 procedure growth outlook to +15-17%. FY25 margins are likely not set in stone, given the fluidity behind the current trade policy. As such, ISRG may end up returning its margin outlook to its previous forecast. In the interim, ISRG is committed to ensuring the supply of its products, optimizing production costs, and adjusting its supply chain strategy and pricing after signs of a durable planning environment for trade.

ISRG's solid Q1 report was hijacked by concerns over tariffs eroding its margins for the year. However, just as quickly as ISRG shares were dragged lower on the news, they snapped back on the possibility that China tariffs could be reduced considerably. Today, the WSJ reported that tariffs could be as low as 50%, a welcomed development for ISRG. At the same time, the company's da Vinci 5 rollout is progressing nicely while procedure and utilization growth remain strong globally, keeping ISRG in a sturdy position to maintain its upbeat momentum.