Two healthcare artificial intelligence (AI) stocks that can be wise investments

Artificial Intelligence (AI) has been the hottest investment trend since early 2023. This is not surprising. Because AI could change the number of companies doing business while making industry leaders huge amounts of money. Although technology companies have received the most attention, many companies in other industries are implementing AI in profitable ways.

Let’s consider two examples from the healthcare sector. intuitive surgery (ISRG -0.25%) and Medtronic (MDT 0.27%). Here’s why they’re both smart stock picks.

1. Intuitive surgery

Intuitive Surgical has a portfolio of medical devices as renowned as the da Vinci system. This robot-assisted surgery (RAS) device allows doctors to perform minimally invasive surgeries using small instruments that can be manipulated with precision. The company has used AI to improve the performance of some of its products. Here are two examples:

A versatile tool with a compatible da Vinci system, Intuitive’s SureForm Stapler uses machine learning algorithms to analyze the thickness of the body tissue it fixates, providing features that help 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 associations between surgical techniques, patient populations, and outcomes.

The company expects to make more AI-related innovations to improve its high-performance da Vinci system, which has helped it achieve superior financial performance and stock price growth over the past decade.

ISRG data from YCharts

The healthcare giant is an innovative monster that pioneered the development of RAS devices that help doctors perform non-invasive surgeries. These procedures offer many benefits, including smaller incisions, less bleeding, quicker recovery times, and shorter hospital stays. Intuitive Surgical still has runway for growth. Currently, only about 5% of surgeries can be performed robotically.

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 difficult to knock Intuitive Surgical off its feet. While the increasing integration of AI into devices will bring meaningful change in the long term, Intuitive Surgical was and still is an excellent stock to buy before the recent AI craze.

2. Medtronic

Medtronic is also implementing AI in some medical devices. Consider the company’s cardiac monitoring system, LINQ II. Thanks to AI algorithms, Medtronic was able to fine-tune the device and reduce the number of false alarms while maintaining a high level of true alarms. Another example of Medtronic’s use of AI is the company’s Touch Surgery, an AI-powered video platform designed to help better train doctors.

Medtronic also has big ambitions for AI. Beyond that, the company’s prospects remain exciting, despite the company’s struggles to grow earnings at a good rate in recent years.

MDT Revenue (Quarterly) Data from YCharts

But the healthcare giant is doubling down on innovation. One of Medtronic’s most promising areas is RAS. In fact, its device, the Hugo system, is not yet approved in the United States. But given how underpenetrated this market is, Medtronic sees this as a significant long-term growth opportunity. Intuitive Surgical is one of the few medical device giants with the capabilities to challenge Intuitive Surgical in this space.

Medtronic is also seeking to enter diabetes treatment, another market with enormous untapped potential. Medtronic is a leader in providing pumps for people with diabetes. Currently, approximately 500 million adults worldwide have diabetes. A significant proportion live in developing countries. Medtronic operates in 150 countries and can access this vast market in a way that some of its competitors cannot.

Finally, Medtronic is a great dividend stock. The company has raised its dividend for 46 consecutive years. You may soon become a Dividend King. Medtronic likely won’t be a big growth stock, but it could provide stability and solid passive income for risk-averse investors for many years.