Goldman Sachs Downgrades Arm Holdings (ARM) Amid Limited AI Cycle Exposure and Non-Traditional Market Challenges

Arm Holdings (NASDAQ:ARM) is one of the best NASDAQ stocks to buy in 2026. On December 15, Goldman Sachs downgraded Arm Holdings to Sell from Neutral with a price target of $120, which was brought down from $160. This decision was made as the firm updated its 2026 semiconductor sector outlook and predicted that rising AI spending by hyperscalers will support digital, memory, and storage markets, while a recovery in the automotive and industrial sectors should benefit analog chips. However, Goldman Sachs downgraded Arm Holdings due to its limited exposure to the AI cycle, its ongoing business model transition, and the challenges it faces in gaining traction across non-traditional markets.

In FQ2 2026, Arm Holdings (NASDAQ:ARM) achieved its best FQ2 performance to date, with total revenue reaching $1.14 billion, which was a 34% increase year-on-year. This growth was fueled by record royalty revenue of $620 million (up 21%) and a massive 56% surge in licensing revenue, which totaled $515 million. The licensing spike reflects intense global demand for next-gen AI products and Arm Holdings’ high-efficiency compute architecture. The company also delivered a non-GAAP EPS of $0.39, which was $0.06 above the midpoint of its previous guidance.

Strategically, Arm Holdings (NASDAQ:ARM) is positioning itself as the primary solution to the power bottlenecks currently hindering data center expansion. The company’s platform is approximately 50% more energy-efficient than its competitors, a factor that has led to widespread adoption by industry giants including Nvidia, Amazon, Google, and Microsoft. This efficiency drove ARM’s Neoverse royalties to more than double year-on-year. Furthermore, the company announced a strategic partnership with Meta to optimize AI efficiency and revealed plans to acquire DreamBig Semiconductor to secure critical intellectual property for data center networking and high-speed communications.

Arm Holdings (NASDAQ:ARM) architects, develops, and licenses central processing unit products and related technologies for semiconductor companies and original equipment manufacturers.

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Disclosure: None. This article is originally published at Insider Monkey.