By Nate Wolf

Earnings from Arm Holdings have consistently met or exceeded Wall Street's expectations in recent quarters. However, that outperformance belies the chip designer's reliance on its flagship investor, analysts at BofA Securities say.

Japan's SoftBank Group owns around 90% of Arm, and it is also the company's cornerstone customer. Once SoftBank's purchases are taken out of the equation, Arm's growth prospects look dim heading into 2026, BofA said.

The firm downgraded Arm stock to Neutral from Buy and lowered its price target to $120 from $145 in a research note.

U.S.-listed depositary receipts of Arm slipped by 1.6% to $109.39 on Tuesday. Shares are down 22% over the past 12 months as of Monday's close despite a series of solid earnings reports last year.

SoftBank accounted for 35% of Arm's design licensing business in the September quarter -- a number that has grown throughout the past year. Under other circumstances, SoftBank may be a "legitimate independent customer," BofA said, but the investment company's enormous ownership stake in Arm raises concerns about circular financing and conflicts of interest. It also obscures Arm's financial results.

"Notably, [SoftBank's] contribution continues to outgrow management's original expectation, or put it another way, continues to help ARM meet guided numbers which would have otherwise missed by tens of [millions of dollars]," wrote BofA analysts led by Vivek Arya.

Barron's has reached out to Arm and SoftBank for comment.

The growing reliance on SoftBank comes as Arm enters a challenging year for its overall business. BofA remains optimistic about Arm's long-term potential as a vendor for data-center servers. But consumer products like smartphones still comprise the vast majority of Arm's royalties, and near-term demand in these markets is under pressure, the firm said.

Global smartphone shipments, in particular, could decline in 2026 due to increased memory costs and supply constraints, BofA predicts. The firm isn't alone in that assessment: Last week, analysts at Mizuho forecast the global market for handsets to be flat to down 2% in 2026 after rising about 2% in 2025.

BofA expects Arm's royalty and licensing revenue to decelerate into 2026, with licensing growth slowing to single digits in 2027 and 2028 from an estimated 32% in 2025.

Write to Nate Wolf at nate.wolf@barrons.com

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January 13, 2026 10:25 ET (15:25 GMT)

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