The drop wiped $31bn off Microsoft's market capitalisation, which now stands at $281bn.
The Redmond giant disclosed the investment plan on Thursday when it released its earnings for the previous quarter.
Investment bank Goldman Sachs said in a research note that Microsoft will invest another $2bn in fiscal 2007. But, in addition to the cost of the investments, the plan sends a message that Microsoft is losing the race against its competitors.
The investments will be focused around the Live Software initiative unveiled last year, in which Microsoft plans to release a slew of online applications that users can access through a browser.
The move marks a dramatic shift from the company's traditional focus of developing applications installed on local systems and servers.
The software giant also disappointed investors when its revenue forecast for fiscal 2007 fell short of analyst expectations.
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