Arm Holdings Plummets 5.5%: What's Behind the Sudden Selloff?

Summary
• Arm Holdings (ARM) tumbles 5.5% to $114.395, its lowest since late October
• William Blair reiterates 'Outperform' amid AI growth optimism
• B of A Securities cuts price target to $145, sparking immediate selloff
• Tech sector under pressure as AI-driven stocks face valuation scrutiny

Arm Holdings, a key player in the AI semiconductor race, is experiencing a sharp intraday decline amid conflicting signals from analysts and a broader tech sector correction. The stock’s 5.5% drop to $114.395—a 13% annual decline—reflects growing skepticism about its execution risks and high valuations. With a 52-week high of $183.16 and a dynamic PE ratio of 164.6, investors are weighing long-term AI potential against near-term volatility.

B of A Price Target Cut Sparks Immediate Selloff
The selloff was catalyzed by B of A Securities lowering its price target for ARM to $145 from $205 while maintaining a 'Buy' rating. This move, coupled with a broader tech sector decline, triggered panic among investors. The stock’s intraday range of $112.63–$121.63 highlights the sharp reversal from its opening at $121.58. Analysts attribute the drop to concerns over ARM’s high valuation (68x 2026 earnings) and execution risks in a bearish tech environment, despite William Blair’s 'Outperform' rating citing AI-driven growth.

Semiconductor Sector Under Pressure as Tech Giants Retreat
The semiconductor sector is broadly under pressure, with peers like NVIDIA (-3.6%) and AMD (-5.4%) also declining. ARM’s 5.5% drop aligns with sector-wide concerns over AI valuation multiples and supply chain bottlenecks. While ARM’s long-term AI growth narrative remains intact, its 13% annual decline contrasts with NVIDIA’s 56% revenue growth in Q2 2025. The sector’s 25.8% recent correction reflects investor caution amid rising operating costs and competition from GPU-based AI accelerators.

Options and ETFs to Watch Amid Volatility
• RSI: 35.4 (oversold)
• MACD: -5.42 (bearish), Signal Line: -4.66, Histogram: -0.76
• Bollinger Bands: Upper $145.93, Middle $134.98, Lower $124.04
• 200D MA: $137.76 (above current price)
• Support/Resistance: 30D $140.12–$140.92, 200D $139.64–$141.50

ARM’s technicals suggest a short-term bearish trend with long-term range-bound potential. Key levels to watch include the 200D MA at $137.76 and the lower Bollinger Band at $124.04. The Roundhill ARM WeeklyPay ETF (ARMW, -8.19%) and Leverage Shares 2X Long ARM Daily ETF (ARMG, -11.37%) offer leveraged exposure but remain volatile. For options, two contracts stand out:

• ARM20251226P110 (Put, $110 strike, 12/26 expiry):
- IV: 48.17% (moderate)
- Delta: -0.286 (moderate sensitivity)
- Theta: -0.012 (low time decay)
- Gamma: 0.037 (high sensitivity to price moves)
- Turnover: $252,489 (liquid)
- LVR: 67.40% (moderate leverage)
- Payoff (5% downside): $14.395 → $107.18 → $7.18 profit
- This put option offers a balance of leverage and liquidity, ideal for capitalizing on a potential breakdown below $110.

• ARM20260102P105 (Put, $105 strike, 1/2 expiry):
- IV: 53.15% (high)
- Delta: -0.202 (moderate sensitivity)
- Theta: -0.049 (moderate time decay)
- Gamma: 0.021 (moderate sensitivity)
- Turnover: $1.3M (high liquidity)
- LVR: 72.98% (high leverage)
- Payoff (5% downside): $14.395 → $107.18 → $12.18 profit
- This longer-dated put provides higher leverage and time decay protection, suitable for a bearish outlook into early 2026.

Aggressive bulls may consider ARM20251226C110 (Call, $110 strike) if $114.395 breaks above $121.63.

Backtest Arm Holdings Stock Performance
The ARM ETF has demonstrated resilience following a -6% intraday plunge from 2022 to the present. The backtest shows a 3-day win rate of 55.39%, a 10-day win rate of 58.74%, and a 30-day win rate of 63.20%, indicating a higher probability of positive returns in the short term. The maximum return during the backtest period was 16.65%, with a maximum return day at 59, suggesting that ARM has the potential for significant gains following a sharp decline.

Act Now: Position for a Volatile Finish to the Year
ARM’s 5.5% drop reflects a mix of short-term bearish momentum and long-term AI growth potential. With a 35.4 RSI suggesting oversold conditions and a 52-week low of $80.00 in sight, investors must balance risk and reward. The sector leader, NVIDIA (-3.6%), underscores the broader tech correction. For those with a multi-year horizon, ARM’s 68x 2026 PE and AI-driven royalty growth remain compelling, but near-term volatility is likely. Watch for a breakdown below $112.63 or a rebound above $121.63 to dictate next steps.