Butterfly Network (BFLY) Could Be 31% Undervalued As Merge Labs Deal Shifts Valuation View

Butterfly Network licensing deal shifts attention to embedded tech opportunity

Butterfly Network (BFLY) drew fresh investor attention after announcing a multi-year licensing agreement with Merge Labs that centers on its Poseidon Family of Ultrasound-on-Chip technology for brain-computer interface applications.

The arrangement includes upfront and milestone-linked license payments, hardware purchase commitments and technology access fees, with Butterfly also eligible for royalties on potential future commercial BCI systems built by Merge using its CMOS-MEMS ultrasound platform.

Butterfly Network’s recent licensing news comes after a sharp run, with the share price at $7.36 and a 96.27% year to date share price return. The 1-year total shareholder return of very roughly 4x hints at how strongly sentiment has shifted around the story.

Spot emerging peers to Butterfly Network in ultrasound, AI and next-gen interfaces by scanning our hand picked 37 healthcare AI stocks.

After a move that has already delivered a very roughly 4x 1 year total return for Butterfly Network shareholders, the focus now shifts to what the current US$7.36 share price actually implies. Does the recent licensing deal still leave enough upside to justify the risks?

Most Popular Narrative: 31% Undervalued

Against Butterfly Network's last close at $7.36, the most followed narrative points to a fair value of $10.67, which is a materially higher reference point and frames the current licensing excitement in a longer term earnings story.

Ongoing advances in semiconductor manufacturing, new product launches (e.g., iQ Station, upcoming fourth-generation P5 technology), and cost containment efforts are driving product miniaturization and lower production costs, supporting higher gross margins and a credible path to sustainable profitability at scale as portable imaging adoption accelerates globally.

Read the complete narrative.

Investors who want to see what kind of revenue trajectory and margin shift this narrative is assuming can review the underlying model. The numbers behind that profitability path are described as far from modest.

The fair value of $10.67 is based on a detailed storyline that connects Butterfly Network's handheld ultrasound platform, AI software and new BCI licensing deals to higher recurring digital revenue, improving gross margins and a future earnings profile that some analysts view as potentially supporting a premium valuation multiple relative to the wider medical equipment sector.

Result: Fair Value of $10.67 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, Butterfly Network still carries clear execution risks, including reliance on large enterprise deals that may be slow to close and ongoing high R&D spending that keeps profitability distant.

Find out about the key risks to this Butterfly Network narrative.

Another View: Butterfly Network looks expensive on sales multiples

The main narrative frames Butterfly Network as roughly 31% undervalued at $7.36 based on future earnings. A simple check against today’s revenue tells a different story. The stock trades on a P/S of 17.5x, while the US Medical Equipment industry sits around 3x and the peer average is 5x. The fair ratio for Butterfly Network is 5.9x, so the current multiple is roughly three times that level, which lifts valuation risk if the story does not play out as expected. After such a strong share price move, how comfortable are you paying this much upfront for future growth that is still unprofitable?

See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

Given the mix of optimism and concern around Butterfly Network, it makes sense to look at the full picture yourself and not rely on any single story. To see both sides of the argument in one place, review the 2 key rewards and 3 important warning signs.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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