Breakout Watch: 3 Reasons To Monitor This Tasty AI Stock

Names like Nvidia (NVDA) and Palantir Technologies (PLTR) may come to mind when looking for the best artificial intelligence stocks to watch. But Toast (TOST) – a provider of AI-fueled solutions for the restaurant industry – should also be on the menu as it lands a spot on the Investor's Business Daily Breakout Stocks Index.

Here are three reasons to keep an eye on Toast stock, which stands just behind Palantir and just ahead of Nvidia in terms of Composite Rating – an overall gauge of fundamental and technical strength.

A budding breakout is just one of the ingredients driving Wall Street's interest in Toast. Scroll down to learn more about this 2021 IPO, which made its market debut the same year as AppLovin (APP), Duolingo (DUOL), Dutch Bros (BROS), and Samsara (IOT).

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1. Toast Joins Top-Rated Stocks In Top-Ranked Groups

Based in Boston, Toast offers a cloud-based technology platform purpose-built for the restaurant industry. Through ToastIQ, launched in May, the company uses AI to transform the operations of its client restaurants. The system facilitates timely prompts, personalized recommendations, and automated workflows.

Toast serves as the restaurant operating system, connecting front-of-house and back-of-house operations for clients, from point-of-sale systems to financial technology products.

Sporting a 98 Composite Rating out of a highest-possible 99, Toast stock hails from the credit card and payment processing group alongside Cantaloupe (CTLP) and Sezzle (SEZL). The group ranks a solid No. 29 out of the 197 industries IBD tracks, a good sign since the best stocks to watch often hail from the top industry groups.

Palantir sports the highest-possible 99 Composite Rating, while Nvidia comes in just behind Toast at 97.

See Who Joins Toast On The IBD Breakout Stocks Index

2. Rising Growth Fuels Rising Demand

Over the last four quarters, Toast has served up an impressive turnaround in earnings growth. While each quarter's results are based on comparisons to prior-year periods that showed a loss, the company has generated gains ranging from 116% to 178%. During that same period, sales growth has ranged from 24% to 29%.

When Toast reports second-quarter results on Aug. 12, analysts forecast sales growth of 22% to over $1.52 billion. Earnings are expected to rise 59% to 22 cents per share.

That strong growth continues to drive robust demand. Toast stock currently earns a 1.3 up/down volume ratio. Anything above 1.0 indicates demand. On Tuesday, its A- Accumulation/Distribution Rating slipped to a B as the stock reversed lower after briefly clearing a buy point. But demand for Toast remains, with the stock riding eight quarters of rising fund ownership.

Those metrics stack up well against Palantir and Nvidia. Palantir's 1.7 up/down volume ratio tops that of Toast, but it lags its fellow AI stock with a B- Accumulation/Distribution Rating. Nvidia also has a B- Accumulation/Distribution Rating, but leads all three stocks with a 1.8 up/down volume ratio.

Toast's eight quarters of rising fund ownership ties that of Nvidia. Palantir has seen four quarters of increasing fund ownership.

3. Toast Stock Taste-Tests A Breakout

While Nvidia becomes the first company with a $4 billion market valuation and Palantir rises past the top of its buy zone from an alternative handle breakout, Toast shares continue to butter up a fresh breakout. Bouncing sharply above its 21-day exponential moving average on Monday, it briefly shot past a 45.56 buy point in an early-stage flat base on Tuesday. While the stock retreated nearly 3%, Toast held support above its 21-day line.

On Wednesday, Toast rebounded with a 2.5% gain, climbing further above at the benchmark.

In a sign of rising technical strength, the 50-day line continues to trend sharply higher.

Look for Toast's relative strength line to turn higher as the buy point approaches.

IBD Breakout Opportunities ETF

The IBD Breakout Opportunities ETF (BOUT) from Innovator Capital Management tracks the IBD Breakout Stocks Index. As with other index ETFs, this fund allows you to invest in the entire index in addition to, or rather than, buying individual stocks. Learn more here about the ETF and Innovator.

Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.

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