2 Healthcare Artificial Intelligence (AI) Stocks That Could Be Smart Investment Bets – The Motley Fool

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Artificial intelligence (AI) has been the hottest investing trend since early 2023. That’s not surprising, because AI could change how many companies do business while making the industry’s leaders tons of money. While tech corporations have grabbed most of the attention, plenty of companies in other industries are implementing AI in lucrative ways.

Let’s consider two examples in the healthcare sector: Intuitive Surgical (ISRG -0.25%) and Medtronic (MDT 0.27%). Here is why both are smart stock picks.

1. Intuitive Surgical

Intuitive Surgical has a portfolio of medical devices, none more famous than the da Vinci system. This robotic-assisted surgery (RAS) device allows physicians to perform minimally invasive surgeries using tiny instruments they can manipulate accurately. The company has used AI to improve the performance of some of its products. Here are two examples.

Intuitive’s SureForm stapler, an instrument used for various purposes with compatible da Vinci systems, employs machine learning algorithms to analyze the thickness of the body tissue it is clamping on, a feature that helps improve performance. Last year, Intuitive Surgical launched Case Insights, a companion tool to the da Vinci system that uses hospital data to build AI models to find links between surgical techniques, patient populations, and outcomes.

The company expects to make more AI-related breakthroughs to improve its already high-performing da Vinci system, which has helped the company deliver excellent financial results and share-price gains over the past 10 years.

ISRG data by YCharts

The healthcare giant is an innovative monster, having pioneered the development of RAS devices that assist doctors in performing non-invasive surgeries. These procedures offer a range of advantages, from smaller incisions and less bleeding to faster recovery times and shorter hospital stays. Intuitive Surgical still has a long runway for growth — only about 5% of procedures that could be performed robotically currently are.

Given the company’s first-mover advantage in the industry, not to mention the high barriers to entry into this market, it will be extremely challenging to knock Intuitive Surgical off its pedestal. While increasingly incorporating AI into its devices should make a meaningful difference over the long run, Intuitive Surgical was an outstanding stock to buy before the recent AI craze, and it remains so.

2. Medtronic

Medtronic is also implementing AI within some of its medical devices. Consider the company’s LINQ II, a cardiac monitoring system. Thanks to AI algorithms, Medtronic has been able to fine-tune this device and decrease the number of false alerts while maintaining a high level of true alerts. In another example of Medtronic’s use of AI, the company’s Touch Surgery is an AI-powered video platform designed to help train physicians better.

Medtronic, too, has big ambitions for AI. Beyond that, the company’s prospects remain exciting even though it is having trouble growing its revenue at a good clip in recent years.

MDT Revenue (Quarterly) data by YCharts

But the healthcare giant is doubling down on innovation. One of Medtronic’s most promising areas is RAS. True, its device, the Hugo system, isn’t yet cleared in the U.S. But given how underpenetrated this market is, Medtronic rightly sees it as a significant long-term growth opportunity. It is one of the few medical device giants that may have what it takes to challenge Intuitive Surgical in this field.

Medtronic is also looking to make headway in diabetes care, another market with massive untapped potential. Medtronic is a leader in providing pumps for diabetes patients. About 500 million adults in the world now have diabetes. A substantial percentage live in developing countries. Medtronic does business in 150 countries, granting it access to this vast market in ways some competitors can’t.

Finally, Medtronic is an excellent dividend stock. The company has raised its payouts for 46 consecutive years. It could soon be a Dividend King. Medtronic likely isn’t a great growth stock, but it can provide risk-averse investors with stability and solid passive income for years.

Prosper Junior Bakiny has positions in Intuitive Surgical. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool recommends Medtronic. The Motley Fool has a disclosure policy.

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