Arm (ARM) Downgraded by BofA on Smartphone and Royalty Headwinds

Arm Holdings plc (NASDAQ:ARM) is one of the Trending AI Stocks on Wall Street. On January 13, BofA Securities analyst Vivek Arya downgraded the stock from Buy to Neutral and lowered the price target to $120 from $145. The rating downgrade comes ahead of ARM’s third quarter fiscal year 2026 results on Feb. 4.

BofA has flagged near-term smartphone unit headwinds (memory cost), increasing reliance on SoftBank in licensing, and royalty slowdown (only about 10% of royalties) for the stock.

Global smartphone shipments could decline at a low single-digit rate year-over-year, compared with LSD in CY25. This will likely be driven by higher memory costs and supply constraints, which would be a headwind to Arm’s Client business that accounts for more than half of royalty revenue.

Despite all these factors, the firm continues to like ARM’s potential in data center over the long-term.

“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). 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 (NASDAQ:ARM) is a semiconductor and software design company that designs and manufactures semiconductor technology and other related products.

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