Arm Holdings Stock is Down 43%. It’s an Underrated Play on Physical AI

The tech and AI trade has grown a bit chppier in recent years, in some places more than others. Of course, the semiconductor stocks have been blasting off in recent weeks (led by the memory chip makers and the semiconductor equipment plays), with the momentum showing few signs of slowing down. But not every AI play has been picking up traction, and with the Magnificent Seven stocks moving in different directions, it certainly seems like a new class of high-tech leaders is emerging as we enter the fourth full year of this AI revolution.

Indeed, it’s been more than three years since ChatGPT arrived, and while we’ve come such a long way since then, we haven’t really had a massive game-changing leap since. Of course, Gemini 3.0 was praised by many, and while the model, as well as ChatGPT-5.2, which was released shortly after, have improved vastly since the days of GPT-3.5, I do think that 2026 could include more surprises as agentic AI looks to hit some sort of inflection point while robotics and physical AI looks to mark the next biggest leap in the AI revolution.

Of course, CES 2026 was all about physical AI. And while the technology may still be many years away, it’s difficult not to feel impressed by the promise of such tech, which may very well be even more transformative as AI enters the physical realm. Of course, the more obvious AI winners, such as Nvidia (NASDAQ:NVDA | NVDA Price Prediction) seem to be getting a tad on the expensive side, and with a relative lack of momentum, perhaps the GPU chip giant isn’t the timeliest play in the world.

Arm Holdings stock has taken a hit. Its shares might be underrated as the robotics race begins

For investors seeking relative value, Arm Holdings (NASDAQ:ARM) stands out as a name that’s been forgotten about in the past couple of months. As other investors chase momentum in select corners of the chip scene (it’s been all about high-performance memory lately), I do think that Arm Holdings shares look enticing as they come in.

The stock is down around 43% from its peak and could be at risk of plunging below $100 per share to the depths not seen since the post-Liberation Day sell-off of 2025. With Arm shares feeling the pressure of recent analyst downgrades (overvaluation concerns?), it might feel like the firm behind the Arm architecture is more of a show-me story, especially as the firm looks to compete in the chip scene with its own customers.

For now, investors seem a bit nervous about Softbank’s margin loan backed by its Arm shares. Indeed, if there is some sort of AI sell-off, things could get really nasty should forced selling be on the table. Given recent momentum, perhaps it’s not all too out of the ordinary to see amplified downside in a bear-case scenario. Time will tell how the Arm Holdings story unfolds as the bear takes control.

Arm Holdings is taking Physical AI seriously. It has the potential to be the next big driver

In the meantime, Arm Holdings recently launched its physical AI division, which could make it a stealthy winner if there’s a boom in physical AI. The chip architecture designer is starting to really expand its growth footprint, and that might justify its lofty multiple, even though considerable risks do remain.

Undoubtedly, Arm isn’t just making a new division to chase a hot, new trend; the firm has restructured in a big way with physical AI at the top of mind. As humanoid robots, autonomous vehicles, and all the sort come into their own, perhaps Arm stock is an underrated name to consider as it readies for the next wave of growth to arrive. For now, Arm Holdings stock is tough to value, especially on the way down.

The stock looks expensive, but as the era of robotics arrives, there’s a new opportunity for Arm Holdings to grow into its multiple.