SoftBank Shares Slide Following Analyst Downgrade of Arm Holdings

SoftBank Group Corp. shares faced significant selling pressure in Tokyo trading today. The decline was primarily triggered by a downgrade of its chip design subsidiary, Arm Holdings, by analysts at Bank of America. This drop extends a weaker performance for the stock this week, even as the Japanese conglomerate advances major artificial intelligence and infrastructure initiatives.

Despite the current pressure from its Arm stake, SoftBank has recently announced several strategic developments. On January 9, the group, alongside OpenAI, revealed a $1 billion investment into SB Energy. This move further concretizes the "Stargate" AI infrastructure project, initially outlined at the White House in 2025.

SB Energy is positioned to serve as the preferred partner for planning, building, and operating next-generation AI data centers. This includes a planned 1.2-gigawatt facility in Milam County, Texas, spearheaded by OpenAI. The partnership deepens an existing relationship, following SoftBank's leadership of a $40 billion funding round for OpenAI in March 2025.

Furthermore, on January 6, brokerage BTIG initiated coverage on SoftBank's stock with a buy rating and a price target of 5,400 yen. Analysts highlighted the company's unique positioning at the intersection of AI and robotics, pointing to its portfolio which encompasses:
* Arm for chip architecture.
* OpenAI for AI model development.
* DigitalBridge (planned acquisition) for infrastructure.
* Robo HD for robotics projects.

These strategic elements are seen as strengthening SoftBank's role as an integrated AI and technology investor, providing a counterbalance to short-term concerns.

Bank of America's Arm Downgrade Weighs Heavily

The immediate catalyst for today's sell-off was a rating cut from Bank of America Securities. On Monday, the firm lowered its recommendation on Arm Holdings from "Buy" to "Neutral" and reduced its price target from $145 to $120. The research points to anticipated revenue headwinds in coming quarters and a growing reliance on SoftBank itself for licensing revenue.

Key concerns detailed in the analysis include:
* A projected approximately 5% decline in Arm's license revenue (excluding contributions from SoftBank) for the 2026 fiscal year.
* The fact that SoftBank now accounts for roughly 30% of Arm's total licensing sales, raising questions about circular financing.
* Weaker smartphone demand, exacerbated by rising memory chip prices and supply constraints.
* The view that the architectural transition among mobile and data center customers is largely complete, potentially limiting further strong license growth.

Should investors sell immediately? Or is it worth buying SoftBank?

Arm's American Depositary Receipts (ADRs) fell 3.5% to $107.26 in U.S. trading yesterday, amplifying the downward pressure on SoftBank's shares today. SoftBank retains about a 90% stake in Arm following its 2023 initial public offering.

Trading Activity and Valuation Context

Today's session falls within the second full week following a 4-for-1 stock split, effective January 1. The split adjusted the per-share price from approximately 17,800 yen to about 4,450 yen, lowering the entry point for a standard board lot (100 shares) from over 1.78 million yen to around 445,000 yen.

Trading volume has remained elevated since the split. By early afternoon, 42.5 million shares had changed hands, compared to an average daily volume of 87.8 million. The split thus improves accessibility for smaller investors without altering the fundamental valuation.

At current levels, SoftBank shares trade at a trailing price-to-earnings (P/E) ratio of approximately 7.9. This places the stock notably below the average for the "Wireless Telecom" industry (18.6) and below the peer average of 16.8.

Despite a recent pullback of 4.2% since the start of the year, the shares show a twelve-month gain of 87%. The analyst consensus for fair value averages 5,456 yen, implying a potential upside of about 29% from the current price. Price targets among analysts range from 2,600 to 7,000 yen.

• Today's share price decline: Over 5%
• Weekly loss: Over 10%
• Key trigger: Arm downgrade by Bank of America
• SoftBank's Arm ownership: Around 90%
• Valuation metric: P/E ratio significantly below industry average

Upcoming Quarters in Focus

Market attention now turns to the third-quarter earnings report for fiscal year 2026, scheduled for February 12. Key points for investors will include:
* An updated valuation of the OpenAI investment amid sector volatility.
* Progress on the planned $4.08 billion acquisition of DigitalBridge.
* The integration strategy for recent infrastructure investments.
* Management's outlook on Arm's revenue trajectory given the smartphone weakness highlighted by Bank of America.

SoftBank's balance sheet offers a degree of cushion. As of September 2025, its loan-to-value ratio stood at 16.5%, complemented by a cash position of 4.2 trillion yen. This provides the company with considerable financial flexibility to continue pursuing its ambitious AI and infrastructure strategy, even if near-term pressures from Arm and the smartphone market persist.