Arm Shares Drop 2.97% Amid 69.67% Volume Surge Ranking 132nd in Activity as BofA Downgrade Warns of Smartphone Slowdown and SoftBank Reliance

Market Snapshot

On January 13, 2026, Arm Holdings (ARM) experienced a 2.97% decline in its stock price, closing at $111.14 in premarket trading. Trading volume surged by 69.67% compared to the previous day, reaching $0.83 billion, and ranked 132nd in market activity. Despite strong historical earnings performance, the stock has fallen 22% over the past 12 months, reflecting broader concerns about its near-term growth trajectory.

Key Drivers

Bank of America (BofA) analysts downgraded Arm Holdings to "Neutral" from "Buy," citing a projected slowdown in revenue growth driven by weakening demand in the smartphone market. The firm lowered its price target to $120 from $145, emphasizing that Arm’s licensing and royalty income is vulnerable to a low-single-digit decline in global smartphone shipments in 2026. Rising memory chip costs and supply chain constraints are exacerbating this challenge, with BofA forecasting a 5% drop in licensing revenue for Arm’s 2026 fiscal year, excluding contributions from its largest customer, SoftBank.

A critical concern highlighted in the downgrade is Arm’s growing reliance on SoftBank, which owns 90% of the company and accounts for 30–35% of its licensing revenue. This interdependence raises questions about circular financing and potential conflicts of interest, as SoftBank’s purchases have increasingly propped up Arm’s financial results. BofA analysts noted that SoftBank’s contributions have consistently exceeded management’s expectations, effectively masking weaker performance in other areas. This dynamic has obscured Arm’s true growth potential and created uncertainty for investors.

The transition to Arm’s latest chip architecture, which had previously driven royalty growth, is now "generally complete" among smartphone manufacturers and data center clients. This saturation reduces near-term upside for royalties, compounding the challenges posed by the smartphone market contraction. While Arm’s business model—charging upfront licensing fees and collecting royalties on chips using its designs—has historically aligned with device sales cycles, the current environment suggests a deceleration in revenue momentum.

Despite these near-term headwinds, BofA and other analysts acknowledge Arm’s long-term positioning in high-growth sectors. The firm highlighted Arm’s potential to benefit from rising complexity in semiconductor design and increased processor demand in smartphones, PCs, servers, and automotive markets. However, these opportunities remain contingent on resolving short-term challenges, including the smartphone market slowdown and reliance on SoftBank. KeyBanc Capital Markets also maintained a negative outlook for Arm due to expected smartphone market contraction in 2026, contrasting with more bullish views on competitors like Intel and AMD.

The broader semiconductor sector faces mixed signals, with hyperscaler demand for AI chips driving strength in some areas but supply bottlenecks and macroeconomic pressures weighing on others. Arm’s stock performance reflects this duality: while its fundamental business model remains robust, structural dependencies and market-specific challenges are currently overshadowing long-term growth prospects. Investors are now closely monitoring Arm’s ability to diversify revenue streams and mitigate its reliance on SoftBank, as well as the pace of adoption in non-smartphone markets like automotive and data centers.