Semiconductor Ultrasound
A medical device company repositioning as a chip platform — licensing its Ultrasound-on-Chip technology to partners building things Butterfly would never build itself.
Personal notes published for reference. Figures are sourced from company filings, releases, and press coverage as of the date above — the interpretation is mine and may be wrong.
CEO Joe DeVivo, CFO John Doherty, with David Horsley (SVP Innovation) on the technology side. The strategic call that matters is DeVivo's: recognizing the chip was worth more as a licensable platform than as a component in Butterfly's own handheld probes. That reframing is the entire current thesis.
This is the part that changed. Point-of-care ultrasound is a real but bounded market. Butterfly Embedded — the licensing and co-development arm — opens the chip to any third party building ultrasound-enabled hardware, in and beyond healthcare. The TAM stops being 'handheld probes sold' and becomes 'devices containing our silicon.'
Still the weakest criterion, but genuinely improving. Q2 2026 gross margin hit a record 71% (from 64% a year earlier) and adjusted EBITDA loss narrowed 78% to $1.4M from $6.2M — both driven by the Embedded mix shift. Butterfly still loses money; it's no longer obviously bleeding out.
Q2 2026 revenue hit a record $32.6M, up 39% YoY and above the high end of guidance, with Embedded revenue up 439% YoY to $10.8M. Full-year guidance has now been raised twice to $119–123M. Two Embedded partners also went public with working hardware within a week of each other in June 2026 — external proof the platform strategy produces something other than press releases.
Butterfly proved its Ultrasound-on-Chip technology in point-of-care imaging with the iQ series, now on its third generation. Butterfly Embedded (formerly Octiv) licenses that same semiconductor platform to third parties.
Selling probes means competing on distribution, regulatory clearance, and sales headcount in a mature medical device market. Selling chips and licenses means collecting fees and per-unit revenue while someone else takes the commercialization risk. The margin profile and the capital intensity are not comparable — and the addressable market is set by other people's imagination rather than Butterfly's product roadmap.
Shares initially jumped sharply (reports put it around 23–24%) on the Q2 beat and second consecutive guidance raise, then gave a chunk of that back in subsequent sessions to around $7.11 — the same push-pull pattern as the June Midjourney reveal below.
Butterfly plans to launch its first home and community care program in October 2026, expected to contribute multiple millions of dollars in 2027 — small next to Embedded, but a second leg that doesn't depend on Midjourney or Aleph Neuro's execution.
The generative-AI company signed a five-year co-development and licensing agreement in November 2025, then revealed what it was building in June 2026: Midjourney Medical and the Midjourney Scanner, a full-body ultrasonic computational tomography device.
$15M one-time fee, $10M annual license fee paid quarterly across the five-year term, up to $9M in milestone payments, plus revenue sharing on hardware incorporating Butterfly chips and separate payments for the chip purchases themselves. Exclusive within a specified field of use.
Midjourney is targeting 5,000 “Midjourney Spas” at roughly 10 scanners each, with a first San Francisco location expected late 2027 and next-generation scanners in 2028. At ~40 chips per scanner, 50,000 units implies chip volumes on a completely different order than the probe business. Butterfly has said later versions may use more modules, not fewer.
Shares jumped sharply on the June reveal — reported moves of 31% to 56% depending on the window — to a 52-week high around $8. The stock then gave a chunk back, which is worth remembering: the reaction priced in a rollout that has barely started.
The scanner is an early-stage prototype, not a cleared medical device. FDA approval would be required for medical use; initial applications focus on body-composition mapping. William Blair flagged open questions on how this actually plays out. The $74M ceiling is a ceiling, not a forecast.
A research lab building non-invasive brain interfaces, and the second Embedded partner to go public with results — a week after Midjourney.
In June 2026 Aleph announced what it describes as the highest-resolution 3D images of the human brain ever captured from outside the skull, using Butterfly's Ultrasound-on-Chip platform — framed as “MRI-level detail” without drilling or an MRI machine's bulk.
Founded by CEO Marley Xiong with co-founders Raffi Hotter and Lev Chizhov. Early-stage, and explicitly a research lab rather than a commercial product company — so there is no near-term revenue attached.
Two independent partners, two completely different applications — full-body tomography and brain-computer interfaces — from the same silicon, within eight days. That's the strongest available evidence that Embedded is a genuine platform rather than one bespoke deal. Brain interfaces are also a category where the ceiling is nowhere in sight.
The highest-profile Embedded partner yet: on Sept 1, 2026, Sam Altman's brain-computer-interface startup picked Butterfly as its exclusive chip-based ultrasound supplier.
Merge Labs launched in January 2026 with $252M in seed funding from OpenAI, Bain Capital, Interface Fund, Fifty Years, and Gabe Newell, co-founded by Sam Altman alongside researcher Tyson Aflalo. It's one of the two best-funded non-invasive BCI efforts in the US — the other, Forest Neurotech, works from the same underlying ultrasound-BCI science via Mikhail Shapiro's lab.
Butterfly becomes Merge's exclusive CMOS-MEMS chip-based ultrasound partner, licensing the Poseidon family of Ultrasound-on-Chip technology under a multi-year Butterfly Embedded agreement. Terms include upfront payments, milestone-based license payments, hardware purchase commitments, access fees, and ongoing royalties — no dollar figures were disclosed. Butterfly retains the right to license the same technology to other companies in the field.
This is now two independent, well-funded groups building non-invasive brain interfaces on Butterfly's silicon — and one carries Sam Altman's name and OpenAI's capital, a different order of credibility than a research lab. It's the strongest evidence yet that Embedded is a real multi-vertical platform rather than one lucky partnership (Midjourney) plus a research curiosity.
No dollar figures were disclosed, and Merge is a brain-computer-interface startup at the earliest stage — no product, no regulatory pathway started, no revenue timeline. Read this as a credibility and optionality signal, the same caveat that already applies to Aleph Neuro.
On Sept 22, 2026, Needham's David Saxon initiated coverage at Buy with a $10 price target, built on a sum-of-the-parts model (roughly 16x 2027 EV/sales) that treats the chip — not the probe — as the business, and names Merge Labs as evidence the silicon travels outside traditional ultrasound. The stock hit a new 52-week high the next day, and the consensus target has since climbed from $7.06 to roughly $9.30–10.50 depending on the tracker. That's the first time the sell side has formally priced the platform thesis this page is built around.
Butterfly's cash-flow weakness makes this one worth watching closely — institutional buying into a story stock is a different signal than institutional buying into a name that can already fund itself.
FMR LLC (Fidelity) raised its stake to roughly 11.8%, BlackRock holds about 7.8%, and Larry Robbins/Glenview Capital about 6.2%. That's a mix of large passive managers and at least one concentrated, activist-style holder — not a purely mechanical index flow.
The 30–56% move on the Midjourney reveal happened before this data was fully captured in filings; some of the increase is likely funds buying the news rather than the underlying platform thesis. Worth re-checking next quarter's filings to see if the position holds through the pullback.
Ownership percentages for this name vary meaningfully by source and date — a byproduct of a small, actively-traded float and a share count that moves with warrant exercises and financing activity. Treat the headline number as approximate.
Q2 2026 was genuinely good, Merge Labs is the highest-profile name yet on the partner list, and Needham's $10 initiation pulled the consensus up with it — but the stock ran right up to meet the new targets, which tells you something the headlines don't.
If this plays out: ~$5
The stock has already run to ~$9.40 — within a few percent of Needham's new $10 target and the raised consensus — so the upgrade cycle may be priced in rather than ahead of it. The Merge Labs deal — announced Sept 1 — disclosed no dollar figures at all, same as Aleph Neuro. Most of the actual revenue growth (+439% YoY in Embedded) is still concentrated in one relationship, Midjourney, that's pre-revenue at the product level: a scanner prototype, not an FDA-cleared device, with the first physical location not expected until late 2027. A famous logo isn't the same as a booked contract, and the stock has already proven it can give back 20+ points of a guidance-driven pop in the same news cycle.
If this plays out: ~$10
Q2's narrowing losses and record 71% gross margin show the pivot in the income statement, not just partner announcements, and Merge Labs is now the third Embedded partner in four months — each in a different application (imaging, brain interfaces, and now a second, better-funded brain-interface effort). None of that is disclosed revenue yet. Expect continued outsized moves around every Embedded update and FDA milestone, in either direction, for a stock this small and headline-driven.
If this plays out: ~$11
If Embedded scales the way three independent, well-capitalized partners now suggest it can, Butterfly stops being a struggling hardware seller and becomes a licensor sitting underneath multiple companies' hardware roadmaps — at the 71% gross margin Q2 just proved is achievable. Sam Altman and OpenAI's capital behind Merge Labs is a credibility signal the Aleph Neuro deal alone didn't carry. The most bullish analyst target, $11, and Simply Wall St's post-deal fair-value estimate of $10.67 (roughly 31% above the pre-deal price) are what that looks like priced in.
$9.39 at the Sept 25, 2026 close (52-week range $1.87–$10.05, market cap ~$2.5B), up from ~$7.36 right after the Merge Labs announcement. Needham's Sept 22 initiation at Buy/$10 lifted the consensus target from $7.06 to roughly $9.30–10.50 depending on the tracker (high $11), and a separate automated fair-value model sits near $10.67. The gap between price and target that existed after Merge Labs has mostly closed. The same source flags the stock trading at 17.5x sales against a "fair" 5.9x — a reminder that undisclosed-terms partnerships can move the narrative faster than the multiple. The scenario targets above are my own rough, directional estimates — not formal price targets — anchored to the sell-side range rather than a full model.
Butterfly's upside now runs through other companies' execution. Midjourney's spa rollout, FDA pathways, and Aleph's and Merge's research all sit outside Butterfly's control.
First Midjourney location late 2027, next-gen scanners 2028, 50,000 units by 2031. The meaningful chip volume is years out; the stock has already moved on it.
The handheld probe business still loses money. Compass AI and Butterfly Garden are attempts to build higher-margin software revenue around it, but the base business needs to stop bleeding regardless of what Embedded does.
This is a small cap that moved 30–56% on a single partner announcement and 19% down in another session. Headline-driven in both directions.