Arm Holdings Plummets 3.6% Amid Analyst Downgrade and Sector Turbulence: What’s Next for the Chip Giant?

Summary
• Bank of America downgrades Arm Holdings to 'neutral' amid concerns over revenue growth and SoftBank dependency
• New Physical AI division targets robotics and automotive markets, signaling strategic shift
• Stock trades at 3.6% below previous close, with intraday range of $105.90–$111.75
• Analysts highlight oversold RSI and bullish MACD as mixed signals for near-term momentum

Arm Holdings (ARM) faces a turbulent session as a downgrade from Bank of America and sector-wide headwinds push its stock to a 3.6% decline. The chip designer’s strategic pivot into robotics and automotive markets contrasts with immediate concerns over slowing smartphone demand and licensing revenue. With technical indicators showing oversold conditions and a bearish short-term trend, investors are weighing the impact of macroeconomic pressures against long-term innovation bets.

BofA Downgrade and Smartphone Market Headwinds Spark Sell-Off
Arm Holdings’ sharp intraday decline stems from a Bank of America downgrade to 'neutral,' citing a projected 5% drop in licensing revenue for fiscal 2026 due to slowing smartphone shipments and rising memory chip costs. Analysts highlighted Arm’s growing reliance on SoftBank for 30% of licensing revenue, raising concerns about circular financing. Additionally, the completion of transitions to Arm’s latest chip architecture among smartphone and data center clients has capped near-term royalty growth. These factors, combined with broader semiconductor sector volatility, triggered a sell-off as investors recalibrate expectations for the company’s near-term performance.

Semiconductor Sector Volatility Amplifies Arm’s Decline
The semiconductor sector, led by peers like NVIDIA and AMD, has seen mixed performance amid global supply chain bottlenecks and shifting demand dynamics. While NVIDIA’s Blackwell AI chips face regulatory hurdles in China, Arm’s focus on robotics and automotive markets positions it differently from traditional chipmakers. However, the sector’s sensitivity to macroeconomic trends—such as rising memory costs and geopolitical tensions—has amplified Arm’s decline. The S&P Semiconductor Select Industry Index fell 0.6% on the day, reflecting broader investor caution.

Navigating Volatility: ETFs and Options for Short-Term Positioning
• 200-day average: 137.24 (well above current price)
• RSI: 41.96 (oversold territory)
• MACD: -5.83 (bearish divergence from signal line at -6.82)
• Bollinger Bands: 104.19–125.24 (current price near lower band)
• Key support/resistance: 104.19 (lower band), 114.72 (30D SMA), 142.24 (100D SMA)

ETFs to Watch:
• Leverage Shares 2X Long ARM Daily ETF (ARMG): -7.23%
• Roundhill ARM WeeklyPay ETF (ARMW): -4.41%

Top Options Contracts:
1. ARM20260123P95 (Put Option)
• Strike Price: $95
• Expiration: 2026-01-23
• IV Ratio: 88.79% (high volatility)
• Leverage Ratio: 8.60%
• Delta: 0.8122 (high sensitivity to price moves)
• Theta: -0.4804 (rapid time decay)
• Gamma: 0.0163 (moderate sensitivity to gamma)
• Turnover: 33,501 (high liquidity)
• Payoff (5% downside): $12.63 (max profit if price drops to $101.83)
• Why it stands out: High IV and leverage make this put ideal for aggressive short-term bearish bets, with strong liquidity for entry/exit.

2. ARM20260123C99 (Call Option)
• Strike Price: $99
• Expiration: 2026-01-23
• IV Ratio: 78.59% (moderate volatility)
• Leverage Ratio: 9.83%
• Delta: 0.7517 (moderate sensitivity)
• Theta: -0.4772 (rapid decay)
• Gamma: 0.0216 (high sensitivity to price swings)
• Turnover: 7,177 (reasonable liquidity)
• Payoff (5% downside): $0.00 (out-of-the-money if price drops to $101.83)
• Why it stands out: High gamma and moderate IV position this call for directional plays if the stock rebounds from oversold levels.

Trading Setup: With RSI in oversold territory and MACD bearish, short-term traders may consider the ARM20260123P95 for downside exposure, while bulls eyeing a rebound could target the ARM20260123C99. Watch for a break below $104.19 (lower Bollinger Band) to confirm a deeper correction.

Backtest Arm Holdings Stock Performance
The ARM ETF has demonstrated positive performance following a -4% intraday plunge from 2022 to the present. The backtest shows a 3-day win rate of 53.38%, a 10-day win rate of 56.58%, and a 30-day win rate of 60.85%. The average returns over these periods are 1.26% over 3 days, 3.57% over 10 days, and 9.31% over 30 days, indicating a higher probability of positive returns in the short to medium term. The maximum return during the backtest was 16.68%, which occurred on day 59, suggesting that ARM can recover from significant intraday declines to achieve substantial returns in the following days.

Arm at a Crossroads: Strategic Shifts vs. Near-Term Pressures
Arm Holdings’ 3.6% decline reflects immediate concerns over revenue growth and sector dynamics, but its long-term potential in robotics and automotive markets remains intact. The stock’s oversold RSI and bearish MACD suggest short-term volatility, yet the 200-day average at $137.24 highlights a significant gap for recovery. Investors should monitor the NVIDIA (NVDA) sector leader, which fell 0.38%, as a barometer for broader semiconductor sentiment. For now, the ARM20260123P95 put option offers a high-leverage play on near-term weakness, while a rebound above $114.72 (30D SMA) could signal a resumption of the long-term uptrend. Action: Position for a short-term bearish move with the ARM20260123P95, but keep an eye on the 52-week low at $80 as a critical support level.