Over the past year, advancements in AI and predictive analytics have 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 administrative tasks to critical areas, including clinical trials. Going by data, global AI in the healthcare market is projected to witness a CAGR of 38.5% from 2024 to 2030. 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 Fresenius Medical Care AG & Co. FMS, Masimo Corporation MASI and Veracyte, Inc. VCYT have adapted well to changing consumer preferences and have been 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 sector encompasses a vast array of products, from transcatheter valves and orthopedic devices to cutting-edge imaging equipment and robotics. Recent trends highlight the integration of Artificial Intelligence (AI) in diagnostics, the expansion of telemedicine, the rise of robotic-assisted surgeries and developments in 3D printing, continuous glucose monitoring systems, gene editing and nanomedicine.

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 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. A December 2024 report says that the global genAI in the 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.

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. Going by a J.P. Morgan report of 2025, in 2024, MedTech acquisition activity exceeded the previous two years in both deal count and total announced value. A total of 305 M&A transactions were announced, totaling over $63.1 billion for companies in medical devices, diagnostics, therapeutic digital health and commercial research tools, up from 134 deals in 2023. The recent high-value deals include Stryker’s $4.9 billion agreement to acquire Inari Medical to enhance its portfolio in treating venous thromboembolism and other vascular conditions. Similarly, Thermo Fisher revealed plans to purchase Solventum's purification and filtration business for $4.1 billion aiming to strengthen its biologic drug development capabilities.

Business Trend Disruption: Per IMF’s January 2025 World Economic Outlook, global growth is expected to remain lackluster over the next couple of years. At 3.3% in both 2025 and 2026, the forecasts for growth are below the historical (2000–19) average of 3.7%. 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 global headline inflation is expected to decline to 4.2% in 2025 and to 3.5% in 2026 with advanced economies reaching the targets sooner than emerging market and developing economies.. However, the IMF apprehends that the current policy-generated disruptions to the ongoing disinflation process could interrupt the pivot to easing monetary policy, with implications for fiscal sustainability and financial stability. 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 #81, which places it in the top 33% of more than 248 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 2.2% against the broader sector’s decline of 5.4%. The S&P 500 has surged 19.9% 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 32.00X compared with the broader industry’s 21.16X and the S&P 500’s 22.01X.

Over the past five years, the industry has traded as high as 41.28X, as low as 26.04X and at the median of 33.99X, 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

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 #1 (Strong Buy) company’s 2025 sales is pegged at $2.21 billion, indicating a 5.7% rise from 2024. The consensus mark for Masimo’s 2025 EPS is pegged at $4.50, indicating an increase of 2.3% from 2024.

Price and Consensus: MASI

Fresenius Medical: The company is one of the largest integrated providers of products and services for individuals undergoing dialysis following chronic kidney failure. FMS’ 2025 Strategy prioritizes patients' needs and the quality of care is in line with key drivers and developments for its industry. This, in turn, positions Fresenius Medical’s business well to deliver sustainable growth over the medium term and further.

The consensus estimate for this Zacks Rank #2 company’s 2025 sales is pegged at $21.35 billion, indicating a 2.1% rise from 2024. The consensus mark for FMS’ 2025 EPS is pegged at $1.92, indicating an improvement of 15.7% from the year-ago period reported figure.

Price and Consensus: FMS

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 2025 and 2026 sales is pegged at $487.5 million and $533.70 million, respectively, indicating a 9.4% and 9.5% rise from 2024 and 2025. Veracyte has a Zacks Rank #2 currently.

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

Price and Consensus: VCYT

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Fresenius Medical Care AG & Co. KGaA (FMS) : Free Stock Analysis Report

Masimo Corporation (MASI) : Free Stock Analysis Report

Veracyte, Inc. (VCYT) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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