During the October 5 episode of Mad Money, a caller asked whether Intuitive Surgical, Inc. (NASDAQ:ISRG) was a broken stock and whether they should consider buying it. Jim Cramer replied:
I don’t like that particular business anymore because there’s too many companies that want to be in it, particularly Johnson & Johnson. Anything can bounce, but it’s at 37 times earnings, and I do not think it warrants that high a price-to-earnings multiple given the fact that the colossus with the AAA balance sheet J&J, is coming in against it. I like the company very much; it’s just too expensive a stock.
Intuitive’s Established Business Meets a New Competitor
Intuitive Surgical, Inc. continues to expand its business. Second-quarter revenue increased 19% to approximately $2.89 billion, while worldwide da Vinci procedures grew approximately 15%. Its installed base reached 11,710 da Vinci systems, up 12% from a year earlier. Instruments and accessories revenue increased 18% to approximately $1.73 billion, highlighting the continuing sales generated by procedures performed on those systems.
Johnson & Johnson’s (NYSE:JNJ) competitive push has also advanced beyond development. On July 22, the company announced that the FDA had granted De Novo marketing authorization for its OTTAVA robotic surgical system for several upper-abdominal general surgery procedures. Johnson & Johnson said it would begin its U.S. commercial launch with selected customers while pursuing additional indications and markets.
The distinction matters as Intuitive already has a substantial installed base and recurring procedure-related revenue, while OTTAVA is beginning its commercial rollout. Authorization establishes a new competitor but does not establish how much business it will win. Cramer’s interest in J&J extends beyond surgical robotics. His earlier comments on innovation outside the technology sector offered another reason the company had caught his attention.
The Earnings Premium Remains Substantial
Intuitive Surgical, Inc. trades at approximately 35.8x forward earnings, compared with 23.3x for Johnson & Johnson. That places Intuitive’s multiple approximately 54% above J&J’s, although Johnson & Johnson’s pharmaceutical and broader medical-device operations make it an imperfect robotics comparison. Intuitive’s latest growth supports a premium, but its guidance also leaves reasons for caution. Management expected full-year da Vinci procedure growth near the midpoint of its 13.5% – 15.5% range and estimated that tariffs would reduce its adjusted gross margin by approximately one percentage point of revenue.
Johnson & Johnson carries different risks. Its second-quarter sales increased 6.6% to approximately $25.3 billion, but adjusted EPS grew a slower 4.7% to $2.90. Declining STELARA sales reduced Innovative Medicine operational growth. OTTAVA’s launch sits within a much larger business that has its own growth pressures. Those pressures add context to Cramer’s earlier preference for J&J over Lilly and Pfizer, when he explained what mattered most to him in choosing among the three.
Fund Ownership Moves in Opposite Directions
According to Insider Monkey’s database, 100 hedge funds held Intuitive Surgical, Inc. in Q2, down from 103 in Q1. Johnson & Johnson had 117 holders, compared with 113 previously. Mid-September short interest was approximately 2.31% of Intuitive’s float and 0.88% of Johnson & Johnson’s. Both figures indicate relatively limited direct short positioning, with more short exposure in Intuitive. Intuitive also appeared among companies that could change the world by 2030, but that analysis raised a question relevant here: how much of a technology’s promise ultimately reaches shareholders?
Cramer’s concern is the price investors are paying as competition increases. Intuitive continues to grow from a strong established position, while J&J offers a lower earnings multiple and a newly authorized challenger. The next stage of the comparison will be commercial adoption. Getting authorization is one milestone; persuading hospitals to choose OTTAVA is another.
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