Starbucks Builds Own AI
Starbucks Builds In-House AI to Replace IBM, Microsoft Software in Broad Cost-Cutting Effort
Key Points
In premarket trading, IBM shares fell about 3.39% and Microsoft declined roughly 1.09% after Bloomberg reported Starbucks is developing in-house AI tools to replace some of its vendor software.
Industry analysis notes that while internal AI tooling can cut upfront software licenses, it may incur higher ongoing maintenance and staffing costs, potentially offsetting savings.
Starbucks’ enterprise technology budget is being scrutinized as part of its broader $2 billion cost-cutting initiative, with the enterprise team on track to trim about $30 million in the fiscal year ending late September, including around $10 million in software spending.
GuruFocus highlights Starbucks as undervalued, citing a GF Value of $88.07 (vs. a market price around $28.17) and a P/E (TTM) of 14.9x compared with a 5-year median of 19.34x.
Starbucks is building its own AI tools to replace software it currently buys from IBM and Microsoft, Yahoo Finance reported. The news sent IBM shares down 3.39% in premarket trading and Microsoft shares down roughly 1.09%.
The move is part of Starbucks' sweeping $2 billion cost-cutting drive. Starbucks CTO Anand Varadarajan says the company spends about $400 million a year on software — and sees a real chance to cut that number by building tools in-house.
Which IBM and Microsoft Tools Are Being Replaced
The targets are specific. Starbucks is developing a replacement for an IBM maintenance tool and a Microsoft inventory-tracking system, according to Yahoo Finance. Both new tools are being tested, with some deployments potentially ready by the end of next year.
This is not the first time Starbucks has looked to cut ties with a big software vendor. The company has also pursued replacing Oracle's Simphony point-of-sale system with its own homegrown technology.
$400 Million Software Bill Drives the Cost-Cutting Logic
Starbucks' enterprise technology team is already on track to cut about $30 million in the fiscal year ending late September. Around $10 million of that comes from software spending alone. The company is reviewing vendor contracts across the board as part of its larger efficiency push.
Varadarajan's $400 million annual software figure puts the scale of the opportunity in sharp relief. Even shaving 10% off that number would save $40 million a year. Building in-house tools is one way to get there — but analysts warn it comes with trade-offs.
In-House AI Can Cut Costs — But Not Always
Industry analysts caution that building your own software is not a guaranteed win. Cutting vendor licenses saves money upfront. But internal tools require engineers to build them, maintain them, and fix them when they break. Those staffing costs can quietly eat into the savings.
Starbucks is part of a broader trend. More large companies are choosing to build proprietary AI tools rather than buy off-the-shelf software. That shift is putting real pressure on traditional software vendors like IBM and Microsoft, whose shares moved sharply on the Starbucks news alone.
Starbucks Stock Looks Cheap by the Numbers
While IBM and Microsoft absorbed the hit, some analysts see the Starbucks story differently — as a sign the coffee giant is finally getting serious about its finances. GuruFocus puts Starbucks' intrinsic value at $88.07 per share, well above its recent market price of around $28.17.
Starbucks trades at a price-to-earnings ratio of 14.9x — below its five-year median of 19.34x. That gap suggests the market may be underpricing the company's turnaround potential, especially if the cost-cutting plan starts to show results.
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