For all the billions of dollars spent on AI so far, the current increase is nothing like as large, relative to the size of the US economy. dotcom boom was also fuelled by debt in a way that the current AI wave, so far at least, is not. But vigilance is vital.
Article last updated 5 December 2025.
Healthcare equipment makers have been riding a structural wave of growth, powered by a triad of ageing populations, increasing prevalence of chronic health conditions and advances in medical science and technology. Over the past year, however, share prices of medical technology companies have faced headwinds from US policy uncertainty.
Even so, we believe the structural forces for expansion will prevail. What analysts call the ‘med tech’ sector has long enjoyed strong earnings growth, rewarding shareholders handsomely). These shares have traded at an average 62% premium to global equities in general over the past ten years. Granted, that premium has dipped recently – but this may present an opportunity to gain long-lasting quality growth at a discount.
Med tech's strong track record: Medical specialties have consistently outperformed global stocks
Healthy demand
The pace of annual earnings increases in the healthcare equipment sector has typically run in the mid-single digits as populations age and chronic conditions such as diabetes become more prevalent.
But scientific advances and product innovation have also kept pace. Responding to these structural shifts, new medical technologies have emerged, spanning prevention, diagnosis, monitoring, treatment and care.
The rising cost of care has become a challenge for healthcare providers and society at large, whether paid for by governments, commercial insurers or individuals. Innovations are addressing both unmet medical needs and the cost of care. For example, robotic and laparoscopic surgery (which uses fibre optics to view organs or enable small-scale operations) shorten recovery times. They also reduce complications, compared with traditional methods.
Despite rising costs, demand for healthcare equipment has remained resilient through economic cycles, as most treatments can’t be postponed without serious health consequences. After the pandemic, the growth in the volume of medical procedures surged above the long-term average as backlogs were cleared. This surge has ended, but because of med tech innovation, volume growth in procedures is still slightly higher than before the pandemic.
Innovation is likely to remain a key source of development for healthcare equipment companies, which spend an average of around 8% of revenue on research and development (R&D). This is roughly twice as much as the typical company in global equity indices.
We favour companies with a clear competitive edge in a particular area of medical equipment, such as orthopaedics or surgical robotics. Businesses that lead in their fields often enjoy faster growth and higher profit margins through deeper relationships with specialist doctors. These medics provide valuable insight into evolving needs and inform innovation. In more difficult markets, these firms also tend to outperform peers and capture greater market share.
Who’ll pay the bill?
Against this tailwind of solid long-term growth, policy uncertainty in the US has created short-term headwinds. Healthcare equipment has historically been exempt from US tariffs. But medical devices were included in the tariffs announced by the US government earlier this year and then reciprocated by China and other major importers. We think the leading companies can cope. Based on guidance from those we follow, we estimate the reduction in earnings from tariffs at low to mid-single digits. And concerns may be overdone about potential reductions in US hospital budgets linked to lower Medicaid funding by the federal government. On average, healthcare equipment companies generate only 10–15% of their revenues from Medicaid spending.
However, these factors have weighed on valuations. Shares are currently trading at an average of 25 times forecast earnings over the next 12 months. That remains a 34% premium to the global stock market. But it’s down from the 10-year average premium of 62% we referred to earlier.
Medical Specialties vs World index valuation premium
The valuation gap (grey area) is narrow relative to the long-term average
The long-term prognosis is good
The structural shifts supporting growth in the sector – ageing populations, the rise of chronic illnesses and innovation – are not the only things working against these headwinds. Regulatory complexity and substantial R&D investment requirements deter new entrants. This gives established companies a competitive advantage, protecting their robust profit margins.
As the impact of tariffs and government funding changes becomes clearer, we expect valuations to move closer to previous levels – we think these tariffs and funding cuts will remain manageable. We also still see significant scope for growing revenue, which tends to be a key catalyst for outperformance in the share prices of healthcare equipment companies.
Growth is likely to be strongest for companies that can either introduce entirely new products or enhance existing ones to improve efficiency and clinical outcomes.
Recent examples from the US include Abbott Laboratories’ MitraClip, which treats a leaky mitral valve without open-heart surgery, and Boston Scientific’s Watchman, which lowers lifetime stroke risk for patients with atrial fibrillation by offering an alternative to blood thinners.
In the near term, we’re watching for the results of a US Department of Commerce investigation into whether certain medical imports threaten national security. Its findings are expected in June. This could lead to higher tariffs, although non-US firms that invest in US manufacturing may receive exemptions. We’ve seen this in the pharmaceutical sector.
Looking further ahead, advances in artificial intelligence could add a further structural underpinning to growth in the medical equipment sector, enhancing productivity and accelerating product innovation. Beyond radiology, this potential remains largely untapped – but it could transform the industry in the years ahead.
Short-term policy risks may create volatility. But we believe innovation, demographics and rising healthcare demand will continue to feed healthy long-term returns for investors in medical technology.