Toast (TOST) has been one of the market’s overlooked names this year.
While AI stocks pulled in more investor money, Toast, the company behind the tablets at your local restaurant, drifted lower.
TOST fell roughly 19% over the past six months, even as the S&P 500 gained 7.4%.
Then Goldman Sachs stepped in.
On July 9, Goldman Sachs upgraded Toast to buy from neutral, raising its price target to $36 from $30. The stock closed at $29.32 the next day, roughly25%below that target.
For anyone who has lost patience with TOST stock, Goldman’s call is worth a closer look.
Why Goldman Sachs sees Toast stock as a bargain right now
Goldman’s thesis starts with a simple observation: Good companies get cheap when investors stop paying attention.
Analyst Will Nance told clients that Toast is a high-quality payments business trading at an undervalued valuation after its rough start to the year, CNBC reported.
In plain terms, the fundamentals kept improving while the share’s price did not.
That gap is the opportunity.
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The stock has already begun to turn. Toast is up about 18% over the past month, a sign that sentiment was shifting before Goldman formalized its call.
Nance is not alone. About 18 of the 23 analysts covering Toast now hold a buy rating, with an average target of $34.81.
The AI marketing tool Goldman thinks changes the story
The growth catalyst Goldman keeps coming back to is a product called Toast IQ Grow.
It is Toast’s first AI agent, built to help restaurants sharpen their online presence and pull in more customers.
Goldman expects Toast IQ Grow to lift SaaS average revenue per user, which is the amount of software revenue Toast earns from each restaurant it serves.
Early results back the idea up.
Restaurants adopting Toast IQ Grow saw an average 8% sales increase, according to The Motley Fool. About 40,000 locations now use Toast IQ weekly.
When a tool measurably raises a customer’s sales, that customer tends to pay for more software, and that is the loop Goldman is betting on.
How Toast keeps adding restaurants and new markets
Under the AI story is a business that keeps scaling.
According to an SEC release, Toast announced in its first-quarter results that its annualized recurring revenue grew 26% to $2.2 billion.
It added about 7,000 new locations in the quarter alone, bringing its total to roughly 171,000.
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The next phase of growth for Toast involves stepping outside its core.
Toast is pushing into retail, international markets, and large enterprise chains. Nance flagged the retail momentum in particular as a driver of continued market-share gains.
What has to go right for the $36 target
- New markets keep compounding. Retail, enterprise, and international markets need to sustain their faster growth rates.
- Toast IQ Grow converts. Adoption has to translate into higher software revenue per restaurant.
- Payment volume holds up. Consumer spending on dining stays resilient through any macro softness.
The risks Goldman is willing to look past
A buy rating does not erase the concerns that pushed the stock down in the first place.
Nance himself pointed to two: rising competition in small-business payments and margin pressure tied to hardware and memory costs, Citybiz reported.
Toast is stockpiling memory chips to get ahead of pricing, which affects near-term cash flow.
Insiders have been cautious, too. Corporate insiders sold about $4.2 million in shares over the past three months with no offsetting purchases, according to GuruFocus.
That kind of one-way selling is worth watching, though it often reflects routine planned sales rather than a sobering verdict on the business.
There is also the rotation risk. In a market that rewards fast-moving AI software, a payments processor can see its valuation remain discounted, no matter how well it executes.
What Toast stock investors should watch next
Goldman’s upgrade is a fresh vote of confidence, but the real test comes at the next earnings report.
Watch three things:
- Whether SaaS revenue per user climbs as Toast IQ Grow scales
- Whether new-market growth holds its pace
- Whether margins absorb the memory-cost headwind
Goldman is not alone in its conviction. Wells Fargo maintains a $36 target, The Globe and Mail reported.
Evercore ISI also holds a $35 buy. Both targets are close to Goldman’s number.
For long-term holders, the setup depends on a durable business getting a second look after an unfair stretch.
For anyone considering a new position, the AI tool and the new-market expansion are what to track. The company’s next quarterly result is the first real test for this.
