Arm Holdings Plunges 4.44% Amid Strategic Shifts and Analyst Downgrades: What's Fueling the Selloff?

Summary
• Arm Holdings (ARM) tumbles to $103.05, down 4.44% from its previous close of $107.84
• Intraday range narrows to $103.02–$106.49 as volume spikes to 933,373 shares
• Bank of America downgrades ARM to 'neutral' citing SoftBank dependency and slowing smartphone demand
• New 'Physical AI' robotics unit sparks debate on long-term growth potential

Arm Holdings is under pressure as a strategic pivot into robotics collides with valuation concerns and analyst skepticism. The stock’s sharp intraday decline reflects a confluence of factors: a downgrade from Bank of America, evolving market dynamics in smartphone demand, and questions about the commercial viability of its new Physical AI unit. With the stock trading near its 52-week low of $80, investors are recalibrating expectations for the chip designer’s AI-driven narrative.

Strategic Reorganization and Analyst Skepticism Trigger Sell-Off
The selloff in Arm Holdings stems from a downgrade by Bank of America, which cited the company’s growing reliance on SoftBank and a projected slowdown in smartphone-driven licensing revenue. Analysts warned that global smartphone shipments are expected to decline in low-single-digit percentages, directly impacting Arm’s licensing and royalty streams. Additionally, the transition to Arm’s latest chip architecture is nearing completion, reducing near-term royalty upside. Meanwhile, the company’s new Physical AI unit, aimed at robotics and automotive applications, has yet to prove its commercial scalability, raising concerns about overreliance on SoftBank-related demand. These factors, combined with rising memory costs and supply constraints, have triggered a risk-off sentiment among investors.

Semiconductor Sector Volatility as NVDA Leads Mixed Performance
The semiconductor sector remains in flux as Arm’s decline contrasts with mixed performance among peers. Nvidia (NVDA), the sector leader, fell 1.89% intraday, reflecting broader market jitters over AI chip competition. While Arm’s struggles highlight sector-specific challenges—such as smartphone demand softness and valuation pressures—Nvidia’s resilience underscores the divergent trajectories within the industry. Investors are now scrutinizing Arm’s ability to replicate its data center AI success in robotics, a market still in its infancy compared to established segments like cloud computing.

Options and ETF Plays Amid Technical Downtrend
• 200-day SMA: $137.21 (well above current price)
• RSI: 36.73 (oversold territory)
• MACD: -5.89 (bearish divergence)
• Bollinger Bands: Price at $103.05, below lower band of $105.82

Arm’s technical profile suggests a short-term bearish bias amid a long-term range-bound pattern. Key support levels to watch include the 200-day SMA ($137.21) and the 30-day support range ($141.25–$141.93). The Roundhill ARM WeeklyPay ETF (ARMW) and Leverage Shares 2X Long ARM Daily ETF (ARMG) offer leveraged exposure but have declined 4.42% and 8.66%, respectively, amplifying downside risk. For options traders, two contracts stand out:

• ARM20260123P98 (Put, $98 strike, Jan 23 expiry):
- IV: 44.52% (moderate)
- LVR: 98.19% (high leverage)
- Delta: -0.229 (moderate sensitivity)
- Theta: -0.0119 (slow time decay)
- Gamma: 0.0399 (high sensitivity to price swings)
- Turnover: $2,319
This put option offers high leverage and strong gamma, ideal for capitalizing on a 5% downside move (projected price: $97.89). Payoff would be $1.16 per contract.

• ARM20260123C103 (Call, $103 strike, Jan 23 expiry):
- IV: 54.28% (moderate)
- LVR: 27.13% (moderate leverage)
- Delta: 0.527 (moderate sensitivity)
- Theta: -0.3957 (rapid time decay)
- Gamma: 0.04297 (high sensitivity)
- Turnover: $6,815
This call option balances leverage and liquidity, suitable for a short-term rebound trade. A 5% downside scenario would yield a $0.16 payoff.

Aggressive bears should prioritize ARM20260123P98 for its high gamma and leverage, while cautious bulls might test ARM20260123C103 for a potential bounce above $103.05.

Backtest Arm Holdings Stock Performance
The ARM ETF has demonstrated resilience following a -4% intraday plunge from 2022 to the present. The backtest shows a 3-day win rate of 53.19%, a 10-day win rate of 56.38%, and a 30-day win rate of 60.64%, indicating a higher probability of positive returns in the short term. The maximum return during the backtest period was 16.68%, with a maximum return day at 59, suggesting that ARM has the potential for significant gains following a sharp decline.

Arm at a Crossroads: Robotics Bet or Valuation Correction?
Arm’s sharp decline underscores the fragility of its AI-driven narrative amid shifting market dynamics. While the Physical AI unit represents a strategic pivot, its commercial viability remains unproven. Investors must weigh the risks of overreliance on SoftBank against the potential of robotics expansion. Technically, the stock faces critical support at $105.82 (Bollinger lower band) and $98 (key put strike). A breakdown below $98 could trigger a retest of the 52-week low. Meanwhile, Nvidia’s -1.89% move highlights sector-wide caution. For now, ARM20260123P98 offers the most compelling short-term play, but patience is key as Arm navigates its transformation. Watch for $98 breakdown or SoftBank-related news to dictate next steps.