(Bloomberg) — For years, Apple Inc. investors have consoled themselves with the idea that no matter what trends look like for major product categories, growth in services would remain robust. Now, the outlook for that business is on shakier footing.

Its shares fell the most since August on Thursday, after the Justice Department filed a suit accusing Apple of violating antitrust laws and suppressing competition by blocking rivals from accessing hardware and software features on its popular devices.

The decline also brings Apple’s year-to-date slide near 11%, erasing $337 billion from its market capitalization. The selloff stands in contrast to the rest of big tech, with the Bloomberg Magnificent 7 Index up about 17% this year. Apple was little changed on Friday.

“Services has been the driver of growth for Apple, with huge margins, and there’s a question of where the business goes from here,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder. “I hope they can limit the damage as much as possible, because we don’t see any new growth drivers on the horizon and the stock still looks expensive. It could be dead money for a while.”

The suit brought by the US Justice Department on Thursday adds a level of risk to Apple’s services business — home to the App Store and Apple Music — that is fed by the more than two billion Apple devices in use. Services revenue expanded 9% in fiscal 2023 while products revenue — iPhones, Macs and iPads — dropped 3%. Furthermore, despite only accounting for 22% of Apple’s sales, services generated more than a third of profit.

The App Store is the biggest component of Apple’s services business. Analysts expect it to generate about $5.8 billion in second-quarter revenue, according to data compiled by Bloomberg. Total revenue is expected to be $90.5 billion.

Regulatory issues are just the latest headache for investors, who are also grappling with weak sales in China, concerns that Apple is behind peers with artificial intelligence, and few obvious catalysts for growth. Bloomberg News recently reported that Apple canceled a long-term effort to build an electric car, and its Vision Pro headset isn’t expected to be a major contributor to revenue in the near-term.

Apple’s second-quarter results, scheduled for release in May, are expected to show revenue down 4.5%. That would represent the fifth quarter with negative growth of the past six. The consensus for Apple’s full-year revenue has dropped 2.1% over the past quarter.

Even after recent declines, the shares trade at 25 times estimated earnings, above their 10-year average, though a slight discount to the 26 multiple of the Nasdaq 100 Index.

“Shares already look expensive, and if we start to see a deterioration in important high-margin businesses like services and the App Store, then it will look even more expensive,” said Eric Clark, portfolio manager at Accuvest Global Advisors. He sees an “air pocket” for the stock until it nears $155. It last closed at $171.37.

This has become an increasingly common view on Apple — a notable deterioration in sentiment for what was, until recently, the largest company by market value in the world. Fewer than 60% of the analysts tracked by Bloomberg recommend buying the stock, compared with rates above 85% for Microsoft Corp, Nvidia Corp, Amazon.com Inc. and Alphabet Inc.

To be sure, the antitrust suit is expected to play out over a long period of time with potential appeals. That would limit near-term impact for a company seen to have a rock-solid balance sheet and massive cash flow. But for some investors, the stock’s recent performance is alarming.

“There’s still a lot of value in the brand, but it is underperforming, has weak growth, a lot of headline risk, and it’s not even cheap,” said Clark. “Honestly, why hold it?”

—With assistance from Subrat Patnaik.

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