Toast’s Comeback Story Is Getting Harder for Wall Street to Ignore

Key Points

• Toast’s artificial intelligence tools are giving analysts a new reason to focus on average revenue per user and recurring revenue growth.
• Goldman Sachs upgraded Toast to Buy, citing Toast IQ Grow and the company’s broader platform opportunity.
• Valuation remains the central debate, with free cash flow and earnings-based models pointing to very different fair value ranges.

Toast Inc. NYSE: TOST shares have rallied sharply into mid-July. Analysts are becoming bullish on the company’s Toast IQ artificial intelligence (AI) platform that launched in October 2025.

The tool is boosting total revenue and annual recurring revenue (ARR). Toast’s first-quarter results showed approximately 7,000 net new locations and 26% year-over-year ARR growth to $2.2 billion.

That was punctuated by The Goldman Sachs Group, which upgraded the stock from Neutral to Buy and raised its price target to $36. The firm was bullish about Toast IQ, which it believes will increase the company’s average revenue per user. Toast has also been increasing its number of accounts, a trend Goldman Sachs believes will continue.

Since the rally, TOST is about 20% below its consensus price target of $37.59. But at a time when investors have higher growth options, the simple question is whether TOST is fairly priced or undervalued.

Toast AI Platform Is Driving Revenue and ARR Growth

On June 10, Toast published data about how its customers used Toast IQ in the first quarter of 2026. The results make clear that restaurant owners are looking for insights to increase the profitability and efficiency of their restaurants. That supports the idea that revenue gains will continue.

However, the company is also facing the costs associated with AI. That means balancing higher hardware and memory costs that could put margins under pressure.

Why Interest Rates Still Matter for TOST

Since going public in 2021, TOST stock has been impacted by the direction of interest rates. It soared to around $51 a share after the IPO. However, this was a time when stimulus money flowed freely, and the revenge travel trade was just getting started.

Toast seemed like the right stock at the right time. That is, until it wasn’t. TOST fell sharply, along with most technology stocks, starting in November 2021.

That wasn’t just because of normal IPO price action. The Federal Reserve began raising interest rates from a level at or near zero percent. Before dismissing that as anecdotal evidence, consider that Toast relies on the restaurant sector. This sector came under pressure as they balanced higher input costs with a consumer who had only so much room to absorb price increases.

That situation is still in place today. Consumer spending remains strong, and the latest data show inflation moderating. That argues against interest rate hikes, which will be bullish for TOST.

Is Toast Stock Undervalued? DCF Models Tell Different Stories

A discounted cash flow (DCF) calculator offers two ways to answer the fair value question. At TOST's current price, both are worth checking because they tell noticeably different stories.

The Intrinsic Value (FCF) model discounts Toast's projected free cash flow to today's dollars, resulting in a fair value range of $35.68 to $65.40 per share. The high end of that range is about 54% above the price as of July 15, suggesting the stock is undervalued on a pure cash-generation basis.

The Intrinsic Value Range w/Earnings Per Share (EPS) model applies multiples of 18.75x to 25x to projected earnings, resulting in a fair value band of $4.59 to $8.37 per share. A 25x forward price-to-earnings (P/E) is below the stock's current P/E and is reasonably generous for a mature company. The gap comes from the earnings base, not the multiple.

Why the disconnect? Toast only recently crossed into sustained GAAP profitability, and its GAAP earnings per share remain small relative to the cash the business actually generates. Stock-based compensation and other non-cash charges weigh on reported EPS in a way that they don't weigh on free cash flow. Analysts project 33% earnings growth over the next 12 months. A static, current-year EPS multiple doesn't fully capture that growth.

That's the real takeaway: the FCF and EPS models aren't contradicting each other so much as measuring different things for a company early in its profitability curve. As GAAP earnings catch up to cash flow, expect that gap to narrow. Until then, the FCF model may be the more reliable gauge of what Toast is actually worth.

Toast Stock Outlook: What to Watch Before August Earnings

TOST is a stock that may be easier to buy than it is to hold. For investors who believe the stock is trading below its fair value, getting in at $30 seems like a safe bet. However, competition and higher costs could eat into the company’s margins, compressing earnings growth, which is the argument skeptics are making.

Toast is scheduled to report earnings on August 4. Confirmation of strong year-over-year revenue growth could go a long way toward affirming Goldman Sachs' outlook. It could also signal that more analysts will raise their TOST targets.