Butterfly Network has found a use for its ultrasound chips far beyond bedside imaging. On September 1, Merge Labs, the brain-interface startup backed by OpenAI and associated with Sam Altman, selected Butterfly Network, Inc. (NYSE:BFLY) as its exclusive ultrasound-on-chip supplier under a multiyear Butterfly Embedded agreement. The arrangement includes upfront payments, development milestones, purchase commitments, access fees, and potential royalties. The dollar amounts were not disclosed, but the structure gives Butterfly several ways to participate if Merge’s technology reaches commercial scale.
The strategic appeal is larger than one customer. Butterfly replaced much of a conventional ultrasound machine with a semiconductor-based architecture, making the system programmable and easier to embed in new devices. A brain-interface project tests whether that platform can become component technology rather than remain tied to selling handheld probes. Butterfly retained the right to license its technology to other partners, so exclusivity appears limited to the relevant Merge application rather than the whole embedded opportunity.
The core business has also improved. Second-quarter revenue increased 39% to $32.6 million, gross margin expanded to 71.4%, and adjusted EBITDA loss narrowed 78% to $1.4 million. Management raised full-year revenue guidance to $119 million to $123 million. Those figures show that Embedded revenue can lift both growth and margin. They also explain why investors may see Merge as validation of a repeatable licensing model.
Yet a research partnership is not the same as mass production. Brain-computer interfaces face long technical, clinical, regulatory, and ethical paths. Butterfly disclosed no contract value, unit schedule, or probability of royalties. Its international revenue fell 14% in Q2, and the company still reported a $12.9 million net loss. A headline linked to Sam Altman can attract attention before it changes cash flow.
Institutional positioning is constructive but not unanimous. Insider Monkey tracked 33 hedge funds holding Butterfly Network, Inc. (NYSE:BFLY) in Q2, up from 26 in Q1, while BlackRock increased its position about 17.9%. At the August 14 settlement, 32.18 million shares were sold short, equal to 15.04% of the float and 4.46 days of average volume. Merge could be the proof point Butterfly needed. The investment case still depends on converting unusual prototypes into disclosed, recurring economics.
The agreement also changes how investors can evaluate Butterfly Embedded. Upfront and milestone payments can help fund development before volume arrives, while royalties preserve upside if a partner succeeds. Conversely, undisclosed economics make it impossible to model the opportunity today. Additional embedded partners that reach commercialization and disclose meaningful economics would provide stronger evidence that the platform can generate repeatable revenue rather than primarily development-stage payments.
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