Through 2024, advancements in AI and predictive analytics rapidly revolutionized the Medical Instruments industry, driving innovation in diagnostics, patient monitoring and personalized treatment. AI-powered algorithms are enabling medical devices to analyze vast datasets in real time, providing accurate predictions and actionable insights for clinicians. Predictive analytics enhances device performance by identifying potential failures and optimizing maintenance schedules, ensuring reliability and reducing costs.

In patient care, AI-integrated devices are advancing early disease detection and risk assessment, leading to improved outcomes. In 2025, the rapid adoption of generative Artificial Intelligence (genAI) and digital therapeutics is expected to take the healthcare industry by storm. GenAI has already started to showcase its proficiency across a range of healthcare fields, from time-consuming administrative tasks to critical areas like technological discovery and clinical trials.

However, a deteriorating geopolitical situation, supply chain bottlenecks leading to a tough situation related to raw material and labor costs, freight charges, as well as healthcare staffing shortages, have put the industry in a tight spot again. Meanwhile, industry players like Masimo Corporation MASI, Penumbra PEN and Veracyte, Inc. VCYT have adapted well to changing consumer preferences and are still witnessing an uptrend in their stock prices.

Industry Description

The Zacks Medical - Instruments industry is highly fragmented, with participants engaged in research and development (R&D) in therapeutic areas. This FDA-regulated industry comprises an endless number of products, starting from transcatheter valves to orthopedic products to imaging equipment and robotics. Among the recent trends, currently, AI is being rapidly used in quick and accurate diagnosis, detection and treatment of diseases. Other focus areas of development within Medical Instruments include telemedicine, robotic-assisted surgeries, 3D-printed devices, continuous glucose monitoring systems, gene editing and nanomedicine, among others.

3 Trends Shaping the Future of the Medical Instruments Industry

genAI Revolution: Since 2023, there has been an increase in the adoption of genAI within the medical instruments space, with “hyper personalization” being the primary feature of genAI-driven treatment options. Added to this, genAI is rapidly paving the way for efficient operational management within the industry. GenAI, while analyzing vast and complex genetic and molecular data, is expected to help healthcare reach new heights in terms of predictive treatment options and smart hospital systems. Going by a Global Marketing Insights report of December 2024, the global genAI in healthcare market was valued at $1.8 billion in 2023 and is expected to witness a CAGR of 33.2% from 2024 to 2032. Rapid advancement in deep learning and natural language processing (NLP), increasing demand for personalized treatment, growing investment in healthcare AI and rising healthcare data volumes are the major growth factors. This apart, the application of AI in the diagnostics space is growing enormously with the market expected to witness a CAGR of 24.6% by 2034 (Precedence Statistics data).

M&A Trend Continues: The medical instruments space has been benefiting from the ongoing merger and acquisition (M&A) trend. It is a known fact that smaller and mid-sized industry players attempt to compete with the big shots through consolidation. The big players attempt to enter new markets through a niche product. As published in a Medical Device Network reportof December 2024, there were 168 M&A deals announced in the third quarter of 2024 worth $14.4 billion. In value terms, it is a 247% increase compared to the year-ago period. In terms of deal volume, it was a 47% increase from the third quarter of 2023. The largest of the deals of 2024 was the $13.1 billion acquisition of Shockwave Medical by Johnson & Johnson. Another significant acquisition of the quarter was Becton, Dickinson and Company or BD’s purchase of the Critical Care division of Edwards Lifesciences for $4.2 billion.

Business Trend Disruption: Per IMF’s October 2024 World Economic Outlook Update, real GDP growth is projected to be 3.2% in 2024 as well as 2025, below the historical (2000–19) average of 3.8%.  Per the report, a few countries, especially low-income developing countries, have seen sizable downside growth revisions, often as a result of increased conflicts. The good news is that there are projections of a global decline in inflation in 2025. After peaking at 9.4% year over year in the third quarter of 2022, headline inflation rates are now projected to reach 3.5% by the end of 2025, below the average level of 3.6% between 2000 and 2019. However, the IMF apprehends that, despite this, downside risks are rising, backed by issues like escalation in regional conflicts, monetary policy remaining tight for too long, and a possible resurgence of financial market volatility with adverse effects on sovereign debt markets. Further, there are chances of higher nominal wage growth, which in some cases reflects the catch-up of real wages, accompanied by weak productivity, which could make it difficult for firms to moderate price increases, especially when profit margins are already squeezed.

Zacks Industry Rank Indicates Encouraging Prospects

The Zacks Medical Instruments industry’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. The industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #65, which places it in the top 26% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Underperforms S&P 500, Outperforms Sector

The industry has underperformed the Zacks S&P 500 composite but outperformed the sector in the past year.

The industry has risen 7.7% against the broader sector’s decline of 0.7%. The S&P 500 has surged 28.6% in a year.

One-Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 32.16X compared with the broader industry’s 20.63X and the S&P 500’s 22.66X.

Over the past five years, the industry has traded as high as 41.26X, as low as 26.21X and at the median of 33.02X, as the charts show below.

Price-to-Earnings Forward Twelve Months (F12M)

Price-to-Earnings Forward Twelve Months (F12M)

3 Stocks to Buy Right Now

Veracyte: San Francisco, CA-based Veracyte continues to witness strong growth momentum on a robust display of strength in the testing business using its established diagnostic platform. The company’s comprehensive Afirma solution’s differentiation is leading to market share gains owing to its quality and performance. The Decipher Prostrate test is also progressing, achieving a “Level 1B” designation in the updated NCCN guidelines.

The Zacks Consensus Estimate for Veracyte’s 2024 sales is pegged at $443.9 million, indicating a 22.9% rise from 2023. The consensus estimate for VCYT’s adjusted earnings is pegged at 38 cents per share, a 137.3% projected jump from 2023. Veracyte sports a Zacks Rank #1 (Strong Buy) currently.

You can see the complete list of today's Zacks #1 Rank stocks here.

Price and Consensus: VCYT

Masimo: Irvine, CA-based Masimo’s focus on patient monitoring and its ongoing research and product development efforts are also impressive. A solid product suite is likely to aid Masimo in solidifying its business globally. A strong liquidity position is an added plus.

The consensus estimate for this Zacks Rank #2 (Buy) company’s 2024 sales is pegged at $2.09 billion, indicating a 1.9% rise from 2024. The consensus mark for Masimo’s 2024 EPS is pegged at $4.03, indicating an increase of 6.3% from 2024.

Price and Consensus: MASI

Penumbra: Headquartered in Alameda, CA, Penumbra designs, develops, manufactures and markets innovative products that address challenging medical conditions in markets with significant unmet needs. The company’s consistent revenue growth momentum is being driven by the extraordinary outcomes Penumbra is witnessing in patients treated with Lightning Flash, Lightning Bolt 7 and RED 72 with SENDit technology.

The consensus estimate for this Zacks Rank #2 company’s 2024 sales is pegged at $1.19 billion, indicating a 12.5% rise from 2023. The consensus mark for Penumbra’s 2024 EPS is pegged at $2.81, indicating an improvement of 34.5% from the year-ago period reported figure.

Price and Consensus: PEN

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