Over the past several months, generative AI (GenAI) has evolved from experimental to practical applications in the Medical Instruments industry. Companies are leveraging the technology to generate synthetic medical images, simulate disease progression, create potential drug molecules and predicttheir effects, helping accelerate the traditionally long and costly drug development process. McKinsey's fourth-quarter 2025 survey of U.S. healthcare leaders underscores this shift, with 50% reporting GenAI implementation at their organizations and more than 80% deploying their first use cases to end users.
At the same time, regulatory bodies worldwide are keeping pace. The European Union AI Act (EU AI Act) 2024, the world’s first comprehensive AI law, introduced strict requirements for high-risk AI systems, including AI-based medical software, risk-mitigation systems and clear user information. The AI Act’s transparency rules are set to take effect in August 2026. The FDA's cumulative total of AI/ML-enabled medical devices exceeded 1,400 from September 1995 through the end of 2025.
Grand View Research estimates the global AI in the healthcare market to expand at a CAGR of 38.9% from 2026 to 2033. Amid industry-wide challenges, companies like Intuitive Surgical ISRG, Alcon ALC and LivaNova LIVN appear well-positioned to benefit from continued AI adoption.
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 sector encompasses a vast array of products, from transcatheter valves and orthopedic devices to advanced imaging equipment and robotics. Recent trends highlight the integration of AI in diagnostics, the expansion of telemedicine, the rise of robotic-assisted surgeries and developments in 3D printing, continuous glucose monitoring systems and gene editing. The rise of GenAI is also reshaping MedTech, from speeding up patient recruitment to optimizing trial designs and improving regulatory processes. The FDA’s Total Product Life Cycle approach supports faster development of safe and effective medical devices critical to public health.
3 Trends Shaping the Future of the Medical Instruments Industry
GenAI Revolution: Over the past couple of years, there has been a significant increase in the adoption of GenAI within the medical instrument space, with hyper-personalization being the primary feature of GenAI-driven treatment options. 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. According to Coherent Market Insights, global GenAI in the healthcare market is projected to expand at a CAGR of 26.2% between 2026 and 2033. The market is expected to benefit from widespread adoption of electronic health records (EHR), which provide the high-quality clinical datasets needed to train genAI models, along with increasing investment in AI-enabled drug discovery and precision medicine across the pharmaceutical and biotechnology sectors. The application of AI in the diagnostics space is growing enormously, with the market expected to witness a CAGR of 32.2% by 2034.
M&A Trend: The medical instrument 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. According to PWC’s June 2026 report, medtech M&A deal value reached $36.5 billion in the first half of 2026, marking continued M&A momentum following a decade-high 2025. Strategic acquirers continued targeting higher-growth categories, including cardiovascular, neurostimulation and ecosystem platforms spanning connected devices, patient monitoring and workflow capabilities. Among the top deals are Boston Scientific’s $15 billion agreement to acquire Penumbra, Danaher’s agreement to acquire Masimo for $10 billion and American Industrial Partners’ $1.27 billion agreement to purchase Avanos Medical. Meanwhile, Medtronic recently completed its acquisition of Salt Lake City, UT-based Scientia Vascular for $550 million.
Business Trend Disruption: The IMF’s July 2026 World Economic Outlook (WEO) notes that global growth is projected at 3% in 2026 and 3.4% in 2027, down from the average of 3.5% observed in 2024-25 and broadly unchanged on a cumulative basis compared with the forecasts in the April 2026 Report. The modest slowdown reflects the impact of the Middle East conflict being partly offset by accelerated demand in the global technology cycle, driven by advances in AI and its adoption. Global headline inflation is expected to rise from 4.1% in 2025 to 4.7% in 2026, before declining to 3.9% in 2027. Slightly revised upward from April, these projections indicate that the disinflation trend in place since the beginning of 2024 has stalled. The IMF also apprehends that the possibility of renewed Middle East conflict looms large and could extend commodity price volatility, threaten supply chains, raise prices and weigh on financial conditions.
Zacks Industry Rank Indicates Dull 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 gloomy near-term prospects. The industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #177, which places it in the bottom 28% of 247 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. It is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 & Sector
The industry has underperformed the Zacks S&P 500 composite and the sector over the past year.
The industry has declined 7.2% against the broader sector’s rise of 10.4%. The S&P 500 has returned 23.8% in a year.
1-Year Price Performance
Image Source: Zacks Investment Research
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 25.28X compared with the broader industry’s 20.98X and the S&P 500’s 21.21X.
Over the past five years, the industry has traded as high as 41.01X, as low as 24.67X and at the median of 31.75X, as the charts show below.
Price-to-Earnings Forward 12 Months (F12M)
Image Source: Zacks Investment Research
Price-to-Earnings Forward 12 Months (F12M)
Image Source: Zacks Investment Research
3 Stocks to Buy Right Now
Intuitive Surgical: Based in Sunnyvale, CA, Intuitive Surgical is a global leader in minimally invasive care and the pioneer of robotic-assisted surgery. The company’s technologies include the da Vinci surgical systems and the Ion endoluminal system. In the second quarter of 2026, Intuitive Surgical delivered 19% year-over-year revenue growth, driven by higher procedure volume and da Vinci system leasing revenues, as well as an increase in the installed base of da Vinci and Ion systems.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2026 earnings per share (EPS) indicates a 16.6% rise over 2025. The consensus mark for 2026 revenues implies a 16.5% improvement. ISRG has an earnings yield of 2.7% against the industry’s negative 3% yield.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: ISRG
Image Source: Zacks Investment Research
Alcon: Switzerland-based Alcon is a leading eye care company operating in the ophthalmic surgical and vision care markets. The company continues to gain market share in U.S. Advanced Technology Intraocular Lenses (AT-IOLs), surgical equipment and consumables, contact lenses and dry eye. Alcon’s innovation pipeline remains active, with upcoming launches of a new eye-whitening treatment, the Unity M microscope and the Unity DX whole-eye diagnostic device.
The Zacks Consensus Estimate for this Zacks Rank #2 company’s 2026 EPS calls for 14% growth. The consensus mark for 2026 revenues indicates a 7.3% improvement. ALC has an earnings yield of 5.2% against the industry’s negative 3% yield.
Price & Consensus: ALC
Image Source: Zacks Investment Research
LivaNova: London, UK-based LivaNova designs, develops and markets cardiopulmonary andneuromodulation products. In the first quarter of 2026, the company witnessed strength across all the regions, driven by durable performance in its cardiopulmonary and epilepsy businesses. LivaNova also achieved key regulatory and clinical milestones, serving as a strong foundation for its planned entry into the high-growth, high-margin obstructive sleep apnea (OSA) market next year.
The Zacks Consensus Estimate for this Zacks Rank #2 company’s 2026 EPS implies year-over-year growth of 8.7%. The consensus mark for 2026 revenues indicates an improvement of 8.3%. LIVN has an earnings yield of 5.4% against the industry’s negative 3% yield.
Price & Consensus: LIVN
Image Source: Zacks Investment Research
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Intuitive Surgical, Inc. (ISRG): Free Stock Analysis Report
Alcon (ALC): Free Stock Analysis Report
LivaNova PLC (LIVN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).