Starbucks (SUB 1.09%) has decided that it can develop better software than Microsoft (MSFT 1.46%) And IBM (IBM 25.21%). Last but not least, the company wants to save costs with a self-built version of some high-priced business software platforms.
This is either a visionary cost reduction or a case study in corporate hubris waiting to be implemented.
The coffee chain is developing AI-powered tools to replace a Microsoft inventory tracking system and an IBM maintenance management platform, according to an internal Starbucks presentation reviewed by Bloomberg News. Starbucks spends about $400 million a year on software, and Chief Technology Officer Anand Varadarajan told employees there are “clear opportunities to reduce spending.”
The market took notice. Microsoft fell 2.4% and IBM fell 5.2%, according to the Bloomberg article published Thursday morning. Starbucks rose more than 3% on the potential cost savings news. toast (TOST +0.28%) At the same time, shares recorded a short-term increase of 2.3%.
Image source: Getty Images.
Table of Contents
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 now write code, and suddenly the business plan says “proprietary platform development.”
But being easier to build doesn’t mean it’s easier to maintain. Enterprise-scale systems require ongoing security updates, integration work, and dedicated technical staff. Starbucks recently ditched an AI-powered inventory tracking system and reverted to manual inventory counts. This is a stark reminder that internal development comes with its own flaws and costs.
To be fair, Starbucks has the scale and resources to pull this off. The major cost-cutting plan aims to reduce annual costs by more than $2 billion, and software is just a small part of that effort.
The long-term question is whether companies pursuing internal AI developments will eventually look for modern, vertically integrated platforms as maintenance burdens increase.
This is where toast comes into play.
Toast plays 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 plays a role in the operation of a single restaurant or an entire chain, Toast has integrated this problem into its comprehensive system.
The company ended the first quarter of 2026 with 171,000 live locations, up 22% year-over-year, and is aggressively expanding into enterprise accounts. Recent successes 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 am confident that enterprise will be a significant growth driver in the coming years,” CEO Aman Narang said on the company’s first-quarter earnings call in May. “For 14 years, we have evolved from a point-of-sale solution to a comprehensive system of record that helps customers manage operations, employees, guests and suppliers.”
Image source: The Motley Fool.
Why the Starbucks situation matters to Toast investors
Toast won’t win the Starbucks account tomorrow, and probably never will. Starbucks has a well-established mobile app, a huge loyalty program, and global complexity that would make any outside vendor nervous. Maybe it needs a giant like IBM or Microsoft to take care of the chain’s inventory management.
But the Starbucks news highlights two dynamics that appear to favor specialists like Toast in the long term:
- Older software providers are vulnerable. oracle (ORCL 2.60%) Simphony, the point-of-sale (POS) system that Starbucks has been trying to replace for years, represents the type of modular business software that can be replaced.
- Large companies are willing to spend money to solve operational problems. The $400 million that Starbucks spends annually on software represents the extent of tech operations budgets that could ultimately be funneled into modern third-party platforms.
This experiment is currently an AI-supported in-house development. In a few years, when the maintenance bills arrive and the original developers have moved on, some of these companies should start looking for integrated platforms designed by specialists. You know, with integrated support and maintenance contracts.
That’s where Toast wants to be. The company has been integrating AI throughout its operations in recent years. As a result, Toast’s engineering speed (also known as 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 locations. Pilot users of the AI marketing agent reported an average increase in sales of 8%.
Today’s change
(0.28%) $0.09
Current price
$30.05
Important data points
Market capitalization
$17 billionMarket capitalization is calculated solely based on publicly traded shares outstanding. Includes unlisted, private or non-traded dual class shares. The implied market capitalization can vary.
Daily range
$29.02 – $30.08
52 weeks range
$22.26 – $49.66
volume
322.4K
Avg. Vol
12.5 million
Gross margin
26.23%
The investment case
The stock trades at about 45 times trailing earnings, which isn’t exactly cheap. But Toast has been profitable since 2024, has grown revenue by at least 24% each year for the past six years, and just achieved a GAAP operating margin of 21%.
The news from Starbucks isn’t necessarily a reason to buy toast today. But investors should keep an eye on the enterprise software market and consider which companies can benefit as internal AI experiments take off.
Toast has a place at this table. Whether it will be served remains to be seen.
https://www.fool.com/investing/2026/07/13/starbucks-wants-to-cut-400-million-software-costs/
