Medical Devices: The Search for a 2026 Catalyst

The market's attention in healthcare is sharply divided. On one side, the steady, predictable beat of medical device earnings is about to kick off. On the other, a viral AI trend is capturing the imagination of investors and the public. This split defines the current narrative, and the iShares U.S. Medical Devices ETF (IHI) is the canary in the coal mine, its 12-month loss fueling a dominant search interest in what's gone wrong.

The immediate catalyst is the 2026 earnings cycle. For dental device makers like Align Technology and Dentsply Sirona, the focus is on whether they can deliver a "brighter outlook" after a choppy 2025. Analysts expect steady messaging and better/less bad results, framing a year of stability rather than a dramatic rebound. This is the defensive, steady-growth profile that has long defined the sector. Yet, in a market hungry for momentum, that very stability looks like a flatline.

That's where the AI trend takes center stage. Search interest is surging around artificial intelligence in healthcare, with applications from AI-assisted colonoscopies to predictive diagnostics. This is the exciting, headline-driven story that captures investor imagination. It's the "robust, energetic patient" in the market's waiting room, while medical devices are the one "recovering from an illness." The result is a clear market attention gap. The sector's fundamental story is being overshadowed by the more glamorous AI narrative.

The bottom line is that the "flatlining" perception is a distraction from the real tension. The main beneficiary in 2026 depends on which catalyst gains momentum. If dental and device earnings deliver a credible, stable outlook, they could reassert their defensive appeal. But if the AI trend continues to go viral, capital will likely flow to the more exciting story, leaving the traditional medical device sector to wait for a different kind of jolt.

The Two Main Characters: Earnings vs. AI

The next major catalysts for medical devices are pulling in two very different directions. On one side is the immediate, operational news cycle. On the other is a longer-term technological shift that could redefine the sector. The market's attention will be split between these two main characters.

The immediate catalyst is the 2026 earnings season. For dental device makers like Envista and Align Technology, the setup is clear. After a choppy 2025 marked by uneven patient visits, analysts expect management teams to deliver steady messaging and better/less bad results. The goal isn't a dramatic rebound, but a credible, stable outlook framed conservatively to allow for predictable performance. This is the defensive, steady-growth story that has long defined the sector. It's the reliable, if unexciting, narrative that investors need to see play out in the coming weeks.

The longer-term, high-impact catalyst is the integration of artificial intelligence. This is where the real transformation is happening. Real-time AI tools for diagnostics and surgery are already in use, moving beyond simple assistance to become more predictive and personalized. As Dr. Austin Chiang of Medtronic noted, the future will combine AI insights with human judgment to deliver proactive, patient-centered care. This isn't a distant promise; it's a commercial reality being deployed today, from AI-assisted colonoscopies to predictive diagnostics for heart disease. For the sector, this represents a potential growth engine that could justify premium valuations.

The bottom line is that the next major moves will be dictated by which character gains the most attention. The earnings season will test the sector's fundamental stability. Meanwhile, the AI trend will be judged on both its clinical promise and its ability to clear regulatory hurdles. For now, the market is watching both, but the AI story is the one with the most viral potential.

Where to Look for the Next Move

The search for a 2026 catalyst means identifying which stocks are best positioned to be the main character. For stability, the clear leader is Abbott Laboratories. Its Medical Devices segment, which is the company's largest business, has reported double-digit organic sales growth for the last eight consecutive quarters. This isn't just a trend; it's a consistent, powerful engine driven by a diverse portfolio and commercial execution. With $19 billion in sales for 2024, this segment is the bedrock of Abbott's growth story. If the anticipated "steady messaging" from the earnings cycle materializes, Abbott's proven track record makes it the prime beneficiary for capital seeking reliable, fundamental growth.

For the AI catalyst, investors need to look beyond standalone names to the larger medtech firms embedding these technologies. The real action is in AI-assisted diagnostics and surgical tools, which are often part of broader portfolios. While the evidence points to the trend's existence, the specific companies at the forefront are typically integrated within giants like Abbott, Medtronic, or Johnson & Johnson. The watchpoint here is not just the technology itself, but whether these firms can successfully navigate the evolving regulatory expectations for AI-enabled devices. The market will reward those that can demonstrate a clear path to commercialization.

The key watchpoint for the entire sector is whether the cautious optimism translates into actual revenue acceleration. For dental device makers, the setup is one of stability, not recovery. Analysts expect steady messaging and better/less bad results, but warn that stability should not be mistaken for recovery. The real test will be if patient volumes and demand for procedures show a meaningful, sustained uptick in the coming quarters. If they do, it would signal a true sector-wide rebound and validate the defensive, steady-growth narrative. If not, the market's attention will likely remain firmly fixed on the more exciting, if riskier, AI story.