Toast (TOST) Has Restaurant Scale. Can It Defend the Software Upsell?

The Restaurant Platform Is Becoming a Competitive Battleground

Toast, Inc. (NYSE:TOST) has turned restaurant point-of-sale software into a growing payments and services business. However, its next earnings opportunity comes from selling more tools to merchants already using the platform, precisely where competitors are expanding. DoorDash’s September 30 launch of DashOS put restaurant marketing, loyalty and other software functions into focus without requiring merchants to abandon existing checkout systems.

The distinction is important: Toast does not need to lose a core payment customer for competition to limit how much it earns from that customer. Its newer AI products, including Toast IQ Grow, are intended to make higher-value software a larger part of its revenue mix.

Toast has climbed to second place in our ranking of the 10 best growth stocks under $50 to buy now, outranking eight companies across multiple industries. But despite the restaurant technology provider’s position near the top, one company has attracted even greater hedge fund interest. And its business model could hardly be any more different from Toast’s.

More Locations Are Producing Greater Operating Leverage

Toast, Inc. added 9,500 net locations in Q2 2026, bringing its footprint to roughly 180,000. Gross payment volume rose 22% YoY to $60.7 billion and annualized recurring run-rate revenue increased 25% to $2.4 billion. More importantly, non-GAAP recurring gross profit streams grew 28% to $595 million, indicating that payments and software contributed more gross profit as the network expanded.

GAAP operating income reached $152 million, up from $80 million, and adjusted EBITDA climbed to $221 million from $161 million. That adjusted figure includes about $10 million of one-time tariff refunds. Investors interested in how those operational improvements are affecting the broader stock thesis can examine how Toast’s recurring cash flow is changing its growth story, which explores the relationship between Toast’s expanding restaurant network and profitability.

The Threat Is in Cross-Selling, Not Necessarily Switching

Jefferies argued on October 1 that DashOS was not likely to displace Toast’s established restaurant point-of-sale system, given the depth of functionality and difficulty of switching. The firm nevertheless identified a possible headwind to selling additional modules such as Toast IQ Grow, which it cited at $499 per month. A customer paying that list price for a full year would represent nearly $6,000 in annual subscription revenue, before discounts and cancellations; Toast has not published enough adoption information to convert that into a companywide forecast.

DoorDash is trying to capture a broader share of local commerce, a strategy examined in why DoorDash’s wider commerce ambitions matter beyond food delivery. Toast, Inc. is also widening its footprint, including September’s Toast Fuel launch for convenience stores and gas stations. Neither initiative has a published stand-alone earnings forecast, so the decisive measure remains future incremental gross profit.

How Much Growth Is Already in the Valuation?

The October 13 Seeking Alpha earnings estimates implied a P/E of 22.36 times 2026 earnings, declining to 17.80 times in 2027, 13.88 in 2028 and 10.41 in 2029. Consensus EPS growth of 25.62%, 28.25% and 33.38% for 2027–2029 assumes continued operating leverage, rather than simply more terminals installed.

Toast, Inc. has a further opportunity in enterprise and international customers, including the recent Kung Fu Tea agreement for more than 330 locations. Such wins can enlarge the payment base, but larger chains often have different economics from independent restaurants, making gross profit per merchant a more meaningful measure than location count in isolation. Toast’s additional product categories must also deliver measurable adoption.

Truist (Buy, $39 from $33) emphasized location additions and software monetization, whereas BNP Paribas cut Toast, Inc. to Neutral from Outperform ($35 from $38) amid concerns about competition and AI expectations. Hedge fund holders dipped to 74 in Q2 from 75 in Q1; short interest rose to 34.27 million shares in September.

Therefore, the test is whether Toast can continue lifting recurring gross profit per location while defending its high-value software offerings.

READ NEXT: Uber (UBER) vs. DoorDash (DASH): Is Faster Growth Worth Paying More For? and Can AI Really Disrupt DoorDash (DASH)?

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