Earlier in the episode, we see Spencer return from a supply run and receive some commendation for it by one of Negan's men.
You look like shit, which means you fought for this. You did your jobs. You get it, and I like that. Negan likes that.
However, just before gutting Spencer, Negan says:
You know, I'm thinking, Spencer. I'm thinking how Rick threatened to kill me, how he clearly hates my guts. But he is out there right now, gathering shit for me to make sure I don't hurt any of the fine people that live here. He is swallowing his hate and getting [Chuckling] shit done. That takes guts. And then there's you The guy who waited for Rick to be gone so he could sneak over and talk to me to get me to do his dirty work, so he could take Rick's place. So I got to ask -- if you wanna take over, why not just kill Rick yourself and just take over? -- You know what I'm thinking? 'Cause I have a guess. [Whispering] It's because you got no guts. [Knife unsheathes] How embarrassing. There they are. They were inside you the whole time. You did have guts.
Its no secret that no-one at Alexandria or anywhere else loves Negan (including Spencer); except maybe the Saviours. In a world where humans/communities are constantly at each other's throats for supplies, superiority or other needs at some point or another, it's hard for me to understand why Spencer's hatred for Rick (given the death's in Spencer's family) is justifiable enough a reason to kill Spencer. Gregory at Hilltop is equally a coward while being in charge. So killing Spencer instead of putting him in command, just to humiliate Rick further doesn't sit well with me. The mere suggestion of it by Spencer would in my opinion take guts, as it definitely didn't seem as if Spencer meant Negan should kill Rick; unless it was his over confidence that brought about his death.