We came across a bullish thesis on Toast, Inc. (TOST) on Substack by Nikhs. In this article, we will summarize the bulls’ thesis on TOST. Toast, Inc. (TOST)'s share was trading at $35.88 as of March 20th. TOST’s forward P/E was 43.29 according to Yahoo Finance.
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The golden glow of the exterior of a modern Upscale Casual Dining restaurant reflecting on a busy street.
Toast’s journey from a fast-growing startup to a profitable and strategically balanced enterprise underscores the power of vertical integration and disciplined expansion. Before the pandemic, the company was scaling rapidly, raising $400 million at a $4.9 billion valuation and aggressively expanding its presence in the restaurant industry. However, COVID-19 brought the restaurant sector to a standstill, forcing Toast to lay off half its staff. The company’s survival was uncertain, yet by 2025, it had staged a remarkable recovery, culminating in its first full year of GAAP profitability, record-breaking customer adoption, and a $1.34 billion revenue figure—up 29% year-over-year. Adjusted EBITDA surged to $111 million, with margins expanding 18 percentage points to 28%, a testament to its business model's resilience and adaptability.
Toast’s success is rooted in its vertically integrated platform, which seamlessly combines restaurant-specific software with integrated payment processing. This synergy creates a powerful flywheel: Toast’s specialized tools optimize restaurant operations, while its embedded payments system provides a high-margin, scalable revenue stream. With payments, order management, inventory, and payroll all integrated into one ecosystem, Toast can generate valuable insights, helping restaurateurs optimize pricing, staffing, and menu offerings. CEO Aman Narang highlighted how Toast’s unique data-driven approach, bolstered by AI, is creating new opportunities for growth and differentiation.
Initially, Toast prioritized aggressive location growth to establish credibility in a fragmented market dominated by legacy providers. By Q4 2024, the company had reached 134,000 locations, but its strategy evolved toward a more balanced approach—focusing on core restaurant market expansion, increasing customer adoption of its broader platform, leveraging data and AI for differentiation, and improving financial discipline. These priorities have led to strong unit economics and sustained margin expansion, with recurring gross profit growing 39% year-over-year. CFO Elena Gomez reinforced that operational leverage remains a priority, ensuring sustainable growth without compromising profitability.
Beyond its core restaurant market, Toast is pursuing multi-pronged expansion strategies. It is deepening its penetration in the U.S., moving upmarket to serve enterprise clients like Hilton Hotels and Potbelly, expanding internationally with 50% year-over-year SaaS ARPU growth, and entering adjacent verticals like food and beverage retail. This diversification provides multiple growth levers while mitigating risk. The retail segment, in particular, represents an untapped opportunity, as Toast’s vertical-specific approach gives it an edge over horizontal cloud-based solutions.
AI is a critical component of Toast’s future. Unlike many tech companies making broad claims about AI, Toast is implementing practical applications that directly address restaurant pain points. AI-powered benchmarking tools, personalized marketing automation, and operational optimization features like Sous Chef enable data-driven decision-making that improves efficiency and profitability. These tools help restaurants maximize revenue, as seen with Ada restaurant, which increased Tuesday night sales by 40% using Toast’s data insights. The company aims to further personalize the guest experience through AI-driven recommendations, mirroring the personalized touch of a neighborhood restaurant but at scale.
Looking ahead, Toast’s 2025 guidance projects 23-25% recurring gross profit growth and adjusted EBITDA of $510-530 million (30% margin), reflecting confidence in continued execution. Key factors influencing its trajectory include macroeconomic conditions affecting restaurant spending, competition from Square, Clover, and Oracle, and the ability to drive higher SaaS ARPU through product adoption. Toast’s execution in enterprise, international, and retail markets will be crucial for sustaining its momentum.
Ultimately, Toast’s transformation underscores the power of vertical integration. By deeply embedding itself within the restaurant ecosystem, it has built a defensible business model with multiple growth avenues. As horizontal competitors attempt to enter the space, Toast’s domain expertise, differentiated technology, and financial discipline position it as the dominant player in restaurant technology.
Toast, Inc. (TOST) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 63 hedge fund portfolios held TOST at the end of the fourth quarter which was 43 in the previous quarter. While we acknowledge the risk and potential of TOST as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TOST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
