Microsoft (MSFT) stock moves lower after the tech giant reported earnings as artificial intelligence (AI) spending weighs on shares. The company’s earnings beat, driven by cloud strength, wasn’t enough to ease investors’ worries about Microsoft’s hefty investments in AI. Piper Sandler equity research analyst of cloud software and analytics Brent Bracelin joins Julie Hyman and Brad Smith on Morning Brief to discuss the dynamics affecting Microsoft stock.

“This was a very good quarter for Microsoft,” Bracelin tells Yahoo Finance, noting why the stock is moving lower despite the earnings beat is “because we're really looking at a $0.50 to $0.70 drag on EPS (earnings per share) now that they're actually accounting for the treatment of that OpenAI investment. We didn't have that in our numbers before. We're now lowering estimates because we're accounting for OpenAI.”

As concerns about Microsoft's spending to invest in AI weigh on the stock, Bracelin highlights the promising potential AI presents to the company. "To put things into perspective, their Microsoft AI business will cross over $10 billion in revenue in two and a half years. The cloud business took ten years to build a Microsoft cloud $10 billion business. So this is one of the fastest growing products in Microsoft's history." He adds, "As you start to think about Microsoft AI as a $10 billion business, we think it has legs to the next $100 billion business" for Microsoft.

"There's a lot of focus on the [capital expenditure] spend and getting a return on that [spending]. I think it's important to think about when Microsoft reports that [capital expenditure] number, we're actually at $82 billion. That sounds like a lot of money. It is a lot of money. But the reality is over half of that spend is actually in building... Building land investments will eventually be filled with capacity and eventually, drive a lot of incremental revenue for Microsoft and, eventually, a lot of profit."

For more on Bracelin's outlook on Microsoft and the company's AI opportunity, watch the video above.

To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.

This post was written by Naomi Buchanan.