Arm's Struggles Intensify as Bank of America Downgrades to Neutral Amid Revenue Slump and SoftBank Reliance Volume Ranks 255th

Market Snapshot

On January 16, 2026, Arm Holdings (ARM) closed with a 0.64% increase, outperforming broader market trends. The stock traded with a volume of $0.56 billion, ranking 255th in terms of trading activity for the day. Despite the modest gain, the company’s shares have declined by 23% over the past 12 months, reflecting broader investor caution amid evolving market dynamics.

Key Drivers

Bank of America Securities’ recent downgrade of Arm Holdings to “Neutral” from “Buy” has intensified scrutiny on the chip designer’s near-term prospects. Analysts, including Vivek Arya and Duksan Jang, highlighted a projected 5% decline in licensing revenue for Arm’s 2026 fiscal year, excluding contributions from major backer SoftBank. This follows a broader slowdown in global smartphone shipments, driven by rising memory chip costs and supply constraints, which are expected to dent royalty income. Smartphone manufacturers and data center clients are also nearing completion of their transition to Arm’s latest chip architecture, reducing incremental royalty growth potential.

A critical concern for analysts is Arm’s growing reliance on SoftBank, which now accounts for 30% of its licensing revenue. While SoftBank’s substantial ownership (90% of Arm) and purchasing power provide short-term stability, the analysts raised alarms about circular financing risks and potential conflicts of interest. SoftBank’s contributions have increasingly offset Arm’s performance against guided numbers, masking underlying structural challenges. The firm’s restructuring into three segments—Cloud and AI, Edge, and Physical AI—has not alleviated these concerns, with the stock dropping nearly 3% following the announcement.

Long-term optimism persists, however, centered on Arm’s role in semiconductor design complexity and expanding demand for processors in smartphones, PCs, servers, and automotive applications. Analysts acknowledged the company’s foundational position in the chip licensing industry, with its designs embedded in most global smartphones. However, near-term headwinds, including macroeconomic pressures and sector-specific bottlenecks, remain dominant factors. BofA maintained a $120 price target for Arm’s American depositary receipts, balancing cautious revenue forecasts with confidence in the company’s strategic positioning for future tech cycles.

The downgrade follows a pattern of revised expectations from analysts. Earlier in December 2025, BofA had reduced its price target from $205 to $145 while maintaining a “Buy” rating. The shift to “Neutral” reflects a recalibration of growth assumptions, particularly around SoftBank’s influence and smartphone market dynamics. Arm’s restructuring into a Physical AI unit, aimed at strengthening its robotics footprint, has not yet translated into clear investor confidence, with shares trading below key levels.

In premarket trading on January 16, Arm’s ADRs fell more than 2% to $111.14, underscoring the immediate impact of the downgrade. The stock’s performance underscores the delicate balance between Arm’s long-term technological relevance and its dependence on legacy revenue streams. Analysts emphasized that the company’s ability to diversify beyond smartphone-driven royalties and demonstrate progress in emerging markets like AI and automotive will be critical for regaining momentum.

The broader semiconductor industry’s trajectory will also play a pivotal role. While Arm’s intellectual property model remains a cornerstone of global chip innovation, its financial health is inextricably linked to the cyclical nature of consumer electronics demand. As supply chains adjust and memory costs stabilize, the next few quarters will be crucial in determining whether the current slowdown is a temporary correction or a more entrenched trend.