Align Technology's Q2 2025 Earnings: Navigating FX Headwinds and Growth in Digital Dentistry

Align Technology (NASDAQ: ALGN) is at a pivotal juncture as it prepares to report its Q2 2025 earnings on July 30, 2025. The company faces a dual challenge: mitigating the drag from foreign exchange (FX) fluctuations while capitalizing on robust demand for its digital dentistry platforms. With a market capitalization of approximately $45 billion as of July 2025, Align's ability to balance these forces will determine whether it can sustain its long-term margin expansion and justify its premium valuation.

FX Pressures and Strategic Adjustments

In Q1 2025, Align's revenue dipped 1.8% year-over-year to $979.3 million, with FX headwinds reducing revenues by $31.1 million. The Clear Aligner segment, which accounts for ~81% of revenue, saw a 2.5% decline in dollar terms despite a 6.2% increase in case volume. This discrepancy highlights the company's vulnerability to currency volatility, particularly as the U.S. dollar remains strong against the euro and yen. However, management has signaled that Q2 will see a partial reversal of this trend, with favorable FX rates at current levels offsetting some of the prior quarter's pain.

The company's strategic response to FX pressures has been twofold. First, it has diversified its manufacturing footprint, with clear aligners for the U.S. market produced in Mexico (USMCA-compliant) and intraoral scanners manufactured in Israel. This reduces exposure to China, where retaliatory tariffs have historically posed risks. Second, Align has shifted its product mix toward non-comprehensive clear aligner offerings (e.g., Invisalign Comprehensive Three and Three), which command lower list prices but drive volume growth. While this strategy may pressure average selling prices (ASPs), the higher volume and favorable FX tailwinds in Q2 suggest gross margins could stabilize.

Digital Dentistry: A Margin-Boosting Catalyst

Align's long-term margin expansion hinges on its digital dentistry segment, which includes the iTero intraoral scanners and exocad CAD/CAM software. In Q1 2025, this segment grew 1.2% year-over-year to $182.4 million, driven by the adoption of the iTero Lumina scanner and the introduction of restorative software. The Lumina's integration with restorative workflows—a $5 billion global market—positions Align to capture cross-selling opportunities with orthodontic practices.

The company's recent product launches further underscore its digital dentistry ambitions. The Invisalign Palate Expander System, approved in China in Q2 2025, and the Invisalign System with Mandibular Advancement (available in the U.S., Canada, Australia, and New Zealand) expand its addressable market. Meanwhile, the AI-powered Align X-ray Insights, now available in the EU and UK, automates 2D radiograph analysis, enhancing productivity for dentists. These innovations not only drive top-line growth but also improve operating leverage, as digital solutions have minimal incremental costs.

Margin Resilience and Guidance

Align's Q2 2025 guidance—revenue of $1.05 billion to $1.07 billion, with sequential growth in both Clear Aligner volumes and ASPs—suggests management is confident in its ability to navigate FX pressures. The company expects non-GAAP operating margins to rise by ~3 points sequentially to ~22.5%, driven by higher ASPs and volume. For full-year 2025, it projects mid-single-digit Clear Aligner volume growth, with Systems and Services revenue outpacing the segment.

The key question for investors is whether these margin gains are sustainable. While the shift to digital dentistry offers a scalable, high-margin path, Align must contend with ASP compression in the Clear Aligner business. Management acknowledges that emerging market expansion and product mix shifts will pressure ASPs in 2025. However, the cross-sell potential from imaging systems and restorative software could offset this, creating a flywheel effect: higher scanner adoption leads to more Invisalign cases, which in turn drives demand for exocad's CAD/CAM tools.

Investment Implications

Align's stock has traded at a premium to peers, with a forward P/E ratio of ~34.43 as of July 2025. This valuation reflects confidence in its digital dentistry growth but also exposes the stock to downside risks if FX volatility or ASP compression materializes. For long-term investors, the company's strategic pivot toward digital solutions—coupled with its strong balance sheet ($873 million in cash as of March 2025)—makes it a compelling play in the $45 billion global orthodontic market.

However, near-term volatility remains a concern. The Zacks Consensus Estimate for Q2 2025 revenue is $1.06 billion, implying a 3.2% year-over-year increase. A miss could exacerbate concerns about FX management and product mix challenges. That said, a beat would validate Align's ability to execute its digital dentistry roadmap and justify its premium valuation.

Conclusion

Align Technology's Q2 2025 earnings report will be a critical test of its ability to balance FX headwinds with the growth of its digital dentistry platforms. While the company faces near-term challenges, its strategic focus on high-margin imaging systems, AI-driven software, and cross-selling opportunities positions it to sustain margin expansion over the long term. For investors with a three- to five-year horizon, Align represents a high-conviction growth story, albeit with near-term volatility. The key will be monitoring its execution on product innovation and FX hedging, both of which will determine whether it can maintain its leadership in the digital dentistry revolution.