We transfer coverage of Pro Medicus (ASX.PME), a provider of software for radiologists to quickly view, enhance, and manipulate images from any device and make a diagnosis. Shares have fallen over 40% in the last year due to increasing angst that advances in artificial intelligence will affect software firms.

The bottom line: We keep our $54 fair value estimate, Narrow Economic Moat Rating, Standard Morningstar Capital Allocation Rating and High Morningstar Uncertainty Rating. Shares remain overvalued, despite the recent correction, as we think the core addressable market is limited. But there are avenues for growth outside of radiology.

  • Visage 7 resonates most with US academic hospitals that seek the latest advanced visualizations. Many smaller radiology groups don’t need Visage 7, especially given the premium price point, and they are relatively costly for Pro Medicus to target and acquire.
  • We estimate Pro Medicus’ addressable market share at over 12% in the US. We assume the market grows 4% on volume and price increases, implying its market share doubles to 24% by fiscal 2035, covering most key target academic hospitals.

Big picture: We think investors are discounting potential competition. A report by KLAS in August 2025 had Sectra with more considerations and selections in the US than Pro Medicus’ product over the last two years. And peer AGFA Healthcare is also gaining momentum.

  • We expect Pro Medicus to continue to gain market share in the medium term based on current speed advantages and fast deployment, but we think competitors will close the gap over the long term.
  • Advances in artificial intelligence, harnessed by software developers, also increase the threat of competition. There are relatively low barriers to entry into the industry, and competitors are now better-positioned to catch up.

Pro Medicus Shares Remain Overvalued, While Transferring Coverage

Pro Medicus’ strategy revolves around renewing existing contracts and winning new clients for its main product, Visage 7, while increasing its price point. The company won six out of six major public tenders it competed for in fiscal 2021, which often involved on-site pilot tests. While this likely highlights Visage 7’s current superior speed, scalability, and resilience, continued investment in research and development is imperative for the firm to remain at the forefront of innovation and consistently win contracts. Most of the firm’s expenses are allocated to over 40 software engineers with the main R&D center located in Berlin. The company also recently extended its R&D capability in New York in collaboration with NYU Langone Health in 2021. Its R&D efforts mostly revolve around software enhancements, program extensions, and research in artificial intelligence to assist in diagnoses.

Many of Pro Medicus’ competitors already utilize server-side rendering and cloud-native architecture. Legacy systems are also mostly owned by larger competitors such as GE Healthcare, Fujifilm, and Philips, which will be incentivized by the high returns in the industry. In Australia, Sectra won an $85 million 13-year deal over Pro Medicus with NSW Health for both its Radiology Information System and Picture Archiving Communications System in 2020.

Visage 7 has found most success with US academic hospitals and in fiscal 2025 was in 11 out of the top 20 ranked US hospitals, more than double its nearest competitor. While Pro Medicus has secured a few contracts with midmarket US hospitals such as Allegheny and Wellspan, wider uptake has been slow, with Visage 7’s features likely superfluous for their normal operations. However, Pro Medicus is still targeting smaller radiology groups that seek to consolidate IT infrastructure and become more efficient.

Currently, Visage 7 is limited to radiology and cardiology departments, but Pro Medicus is aiming to extend the product set to other specialty departments, including ophthalmology. In addition, when winning contracts, the firm has other product offerings, such as Open Archive or Visage RIS, that it can cross-sell to clients.

Bulls Say

  • Pro Medicus is well positioned to benefit from industry tailwinds such as cloud adoption, larger datasets, and remote access.
  • Earnings are extremely defensive due to contracted revenue being largely guaranteed over five to 10 years from customers.
  • The long-term growth opportunity is significant as most of the US market still uses legacy systems, and other geographies are largely untapped.

Bears Say

  • Product differentiation is unlikely to be durable, with low barriers to entry and larger competitors already utilizing server-side rendering and cloud-native architecture.
  • Wide adoption outside of academic hospitals is unproved, and superior speed and visualizations are likely superfluous features for the average hospital.
  • Future contract wins are likely to be smaller as Pro Medicus already dominates the larger US academic hospital market.

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