BofA Securities analyst Vivek Arya downgraded Arm Holdings plc from Buy to Neutral on January 13. The price target was reduced to $120 from $145.
The downgrade comes ahead of Arm's third quarter fiscal year 2026 results, scheduled for February 4.
BofA cited near-term headwinds for the stock, including smartphone unit challenges related to memory costs, an increasing reliance on SoftBank in licensing, and a royalty slowdown. Royalties currently account for only about 10% of the total.
Global smartphone shipments could decline at a low single-digit rate year-over-year, compared with low single-digit growth in calendar year 2025. This potential decline is likely driven by higher memory costs and supply constraints, posing a headwind to Arm's Client business. This segment accounts for more than half of the company's royalty revenue.
In a statement, the analyst said, "For ARM, we flag revenue slowdown (both royalties/licensing) and increasing SoftBank reliance into CY26. Particularly, global smartphone units could decline LSD YoY (vs. up LSD in CY25) on increased memory costs and supply constraints, a headwind to ARM Client (>50% of Royalty sales). Meanwhile, CSS adoption (or content expansion) is still limited and in early stages. For Licensing, we flag FY26 revenue could actually decline -5% YoY (if we exclude SoftBank which now represents 25–30% of total Licensing and could raise circular financing concerns)."
The firm noted that for licensing, fiscal year 2026 revenue could decline by 5% year-over-year if excluding SoftBank, which now represents 25-30% of total licensing.
Despite these factors, the firm's statement added, "Longer-term though, we continue to like ARM’s potential in data center, in both server content ($ per core, more cores, share gains) and new silicon/chiplet opps."
Arm Holdings plc is a semiconductor and software design company.