BofA downgraded the rating of British chip architecture designer Arm (ARM) to Neutral from Buy and lowered the price target on the stock to $120 from $145 ahead of the company’s third quarter fiscal year 2026 results on Feb. 4.
Shares of Arm dipped about 1% on Tuesday.
The analysts said the downgraded Arm on near-term smartphone unit headwinds (memory cost), increasing reliance on SoftBank (SFTBY) (SFTBF) in licensing, and still small data center and AI exposure (only about 10% of royalties).
Arm is majority-owned by SoftBank.
The analysts flag revenue slowdown (both royalties/licensing) and increasing SoftBank reliance into 20226. Particularly, global smartphone units could decline low single digits year-over-year (versus up low single digits in 2025) 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 (with the most recent FQ2 sales missing by $70mn) 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,” said the analysts.
Separately, BofA provided a preview of Advanced Micro Devices (AMD) and Intel (INTC) ahead of the companies respective earnings results. Intel reports on Jan, 22, while AMD reports on Feb. 3.
The analysts said they expect AI/servers to be the stronghold for compute, with AMD likely to beat/raise on quickly growing data center exposure and strong product execution (Mi355X ramping).
The analysts also expect Intel to benefit from healthy server shipments (up high-teens year-over-year in 2025) in the fourth quarter, but see gross margin, or GM, headwinds in the first quarter from higher memory prices and ongoing portfolio transition to less profitable Intel 3/4 nodes from Intel 7/10.