Starbucks Wants to Cut $400 Million in Software Costs. Toast Investors Should Pay Attention.

Starbucks (NASDAQ: SBUX) has decided it can build better software than Microsoft (NASDAQ: MSFT) and IBM (NYSE: IBM). If nothing else, it wants to save costs with a homemade version of some high-priced enterprise software platforms.

That is either visionary cost-cutting or a case study in corporate hubris waiting to happen.

According to an internal Starbucks presentation reviewed by Bloomberg News, the coffee chain is developing AI-powered tools to replace a Microsoft inventory-tracking system and an IBM maintenance management platform. Starbucks spends about $400 million a year on software, and Chief Technology Officer Anand Varadarajan told employees there are "clear opportunities to reduce the spend."

The market took notice. Microsoft fell 2.4% and IBM dropped 5.2% as the Bloomberg article was published on Thursday morning. Starbucks rose more than 3% on the potentially cost-saving news. Toast (NYSE: TOST) shares enjoyed a short-lived 2.3% spike at the same time.

Image source: Getty Images.

The "we'll just build it ourselves" phase

Every company goes through this. The software bills pile up, someone in the C-suite discovers that AI can write code now, and suddenly the business plan includes "proprietary platform development."

But easier to build does not mean easier to maintain. Enterprise-scale systems require ongoing security updates, integration work, and dedicated engineering headcount. Starbucks recently gave up on an AI-powered inventory tracking system and reverted to manual asset counts. That's a stark reminder that internal development comes with its own failures and costs.

To be fair, Starbucks has the scale and resources to pull this off. The grand cost-cutting plan aims to slash annual costs by more than $2 billion, and software is just a small part of this effort.

The long-term question is whether companies that pursue in-house AI builds will eventually seek out modern, vertically integrated platforms once the maintenance burden rears its ugly head.

That's where Toast comes in.

Toast is playing a different game

Toast operates a cloud-based platform for restaurants that combines point-of-sale hardware, payment processing, and operational software. Wherever data or software is involved in running a single restaurant or a whole chain, Toast has integrated that issue into its comprehensive system.

The company ended Q1 2026 with 171,000 live locations, up 22% year over year, and has been expanding aggressively into enterprise 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 in front of us, I am confident enterprise will be a meaningful growth driver for years to come," CEO Aman Narang said in May's Q1 earnings call. "For 14 years, we have evolved from a point-of-sale solution into a comprehensive system of record, helping customers manage operations, employees, guests, and suppliers."

Image source: The Motley Fool.

Why the Starbucks situation matters for Toast investors

Toast is not going to win the Starbucks account tomorrow, and probably not ever. Starbucks has a firmly established mobile app, a massive loyalty program, and the kind of global complexity that would make any outside vendor nervous. Maybe it takes a giant like IBM or Microsoft to handle the chain's inventory management.

But the Starbucks news highlights two dynamics that seem to favor specialists like Toast over the long term:

• Legacy software vendors are vulnerable. Oracle (NYSE: ORCL) Simphony, the point-of-sale (POS) system Starbucks has been trying to replace for years, represents the kind of modular enterprise software that can be replaced.
• Large enterprises are willing to spend to solve operational pain points. The $400 million Starbucks spends annually on software represents the scale of tech operations budgets that could eventually flow to modern third-party platforms.

Right now, that experiment is AI-assisted in-house development. In a few years, when the maintenance bills arrive and the original developers have moved on, some of those companies should start shopping for integrated platforms built by specialists. You know, with built-in support and maintenance contracts.

That is where Toast wants to be. The company has been embedding AI throughout its operations in recent years. As a result, Toast's engineering velocity (aka software development efficiency) is up 60%, and AI now handles 40% of customer support interactions. Toast IQ, the company's analytics and agent platform, has 40,000 weekly active locations. Pilot users of its AI marketing agent reported an 8% average increase in sales.

The investment case

The stock trades at about 45 times trailing earnings, which is not exactly cheap. But Toast has been profitable since 2024, has grown revenue at least 24% every year for the past six years, and just posted 21% GAAP operating margins.

The Starbucks news is not necessarily a reason to buy Toast today. But investors should watch the enterprise software market and consider which companies are positioned to benefit when the in-house AI experiments run their course.

Toast has a seat at that table. Whether it gets served remains to be seen.

Anders Bylund has positions in International Business Machines and Toast. The Motley Fool has positions in and recommends International Business Machines, Microsoft, Oracle, Starbucks, and Toast. The Motley Fool has a disclosure policy.