Starbucks (NASDAQ: SBUX) decided it could build better software than Microsoft (NASDAQ: MSFT) and IBM (NYSE: IBM). If nothing else, it wants to save costs with a home version of high-priced enterprise software platforms.
That’s a cost-cutting idea or business case study waiting to happen.
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According to an internal Starbucks presentation reviewed by Bloomberg News, the coffee chain is developing AI-powered tools to replace Microsoft’s inventory tracking system and IBM’s maintenance management platform. Starbucks spends about $400 million a year on software, and Chief Technology Officer Anand Varadarajan told employees that “there are clear opportunities to reduce spending.”
The market took notice. Microsoft fell 2.4% and IBM fell 5.2% as the Bloomberg article was published Thursday morning. Starbucks rose more than 3% on news of potential savings. Toast (NYSE: TOST ) shares enjoyed a temporary spike of 2.3% during the same period.
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The “we’ll build it ourselves” section.
All companies go through this. Software bills pile up, someone in the C-suite discovers that AI can now code, and suddenly the business plan includes “proprietary platform development.”
But easy to build does not mean easy to maintain. Enterprise-scale systems require constant security updates, integration work, and dedicated engineering calculations. Starbucks recently introduced an AI-powered inventory tracking system and reverted to manual inventory counting. That’s a stark reminder that internal development comes with its failures and costs.
To be fair, Starbucks has the scale and resources to pull this off. A major cost-cutting program aims to reduce annual costs by more than $2 billion, and software is only a small part of this effort.
The long-term question is whether companies pursuing in-house AI development will end up looking for integrated vertical platforms when the burden of maintenance rears its ugly head.
This is where Toast comes in.
Toast plays a different game
Toast operates a cloud-based platform for restaurants that includes commercial hardware, payment processing, and operating software. Wherever data or software is involved in operating a single restaurant or an entire chain, Toast has integrated that problem into its comprehensive system.
The company ended Q1 2026 with 171,000 live locations, up 22% year-over-year, and has been growing strongly into business accounts. Recent wins include Hungry Howie’s (500 units), Papa Murphy’s, and Preferred Hotels.
“We continue to see strong growth, and with the pipeline ahead of us, I’m confident the business will be a driver of meaningful growth in the coming years,” CEO Aman Narang said on May’s Q1 call. “For 14 years, we have evolved from a point-of-sale solution to a complete system of record, helping customers manage operations, employees, visitors and suppliers.”
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Why the Starbucks situation matters to Toast investors
Toast isn’t going to win the Starbucks account tomorrow, and it probably won’t ever again. Starbucks has a well-established mobile app, a great loyalty program, and the kind of global sophistication that would make any foreign retailer nervous. Maybe it takes a giant like IBM or Microsoft to handle the inventory management of the chain.
But the Starbucks news highlights two forces that seem to favor professionals like Toast over time:
Legacy software vendors are vulnerable. The Oracle (NYSE: ORCL) Simphony, the point-of-sale (POS) system that Starbucks has been trying to replace for years, represents the type of business software that can be replaced.
Big businesses are willing to spend to solve operational pain points. The $400 million Starbucks spends annually on software represents an average of technology operating budgets that could eventually flow to modern third-party platforms.
Right now, that test is an in-house development aided by AI. In a few years, when the maintenance bills come due and the original developers have moved on, some of those companies should start buying integrated platforms built by professionals. You know, with built-in support and maintenance contracts.
That’s where Toast wants to be. The company has been embedding AI in all of its operations in recent years. As a result, Toast’s engineering speed (software development efficiency) has increased by 60%, and AI now handles 40% of customer support interactions. Toast IQ, the company’s analytics and agent platform, has 40,000 weekly active sites. Users of the AI marketing agent pilot reported an average increase of 8%.
The investment case
The stock trades at about 45 times trailing earnings, which is quite cheap. But Toast has been profitable since 2024, has grown revenue by at least 24% annually for the past six years, and recently posted GAAP operating margins of 21%.
The Starbucks news is not a reason to buy Toast today. But investors should watch the enterprise software market and consider which companies are positioned to benefit when internal AI experiments run their course.
Toast has a seat at that table. Whether it is offered remains to be seen.
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Anders Bylund holds positions at International Business Machines and Toast. The Motley Fool has positions and recommends International Business Machines, Microsoft, Oracle, Starbucks, and Toast. The Motley Fool has disclosure policy.
Starbucks Wants to Cut $400 Million in Software Costs. Toast Growers Should Pay Attention. was first published by The Motley Fool
