Arm Holdings plc (NASDAQ: ARM) stock fell more than 3% in Thursday's premarket trading, extending Wednesday's 2.71% decline. Weakness across technology stocks and an ongoing legal battle with Qualcomm weighed on investor sentiment.

Nasdaq futures fell 0.59%, while S&P 500 futures declined 0.36%, signaling a weaker start for Wall Street.

Arm shares have gained 76.51% over the past 12 months. However, the stock's high valuation and weakening short-term momentum could leave it vulnerable to profit-taking.

Qualcomm Legal Battle Adds Pressure

Qualcomm Incorporated (NASDAQ: QCOM) and Arm began a five-day trial Monday in Delaware federal court, with billions of dollars in potential royalty payments at stake, Reuters reported.

The company alleges Arm withheld chip testing tools required under their contract and leaked a 2024 license termination threat, damaging its negotiations with Meta Platforms, Inc. (NASDAQ: META).

Qualcomm claims the dispute reduced the Meta deal's value by $170 million and is seeking to suspend royalty payments to Arm for up to five years. Arm denies that Qualcomm suffered damages.

Meanwhile, Qualcomm CEO Cristiano Amon testified in a related proceeding examining whether Arm negotiated in good faith. Qualcomm's attorneys said Arm sought an 18,500% increase in royalty payments between versions 9 and 10 of its chip architecture.

Judge Maryellen Noreika is weighing whether to invalidate the contract provision allowing the five-year royalty suspension, potentially limiting Qualcomm's damages.

Technical Analysis: Short-Term Weakness, Long-Term Strength

Arm's stock is trading below its 20-day simple moving average (SMA) of $287.80 and its 100-day SMA of $295.92. This signals weaker short-term momentum.

However, the stock remains above its 50-day SMA of $268.36 and its 200-day SMA of $218.54. These levels suggest the broader uptrend remains intact.

The relative strength index (RSI) stands at 54.21, indicating neutral momentum. The stock is neither overbought nor oversold.

Arm's 50-day SMA also remains above its 200-day SMA, following a golden cross in April. This technical pattern supports the longer-term bullish trend.

Traders are watching two important levels:

• Key resistance: $337, where selling pressure could limit gains.
• Key support: $279, where buyers may step in during further weakness.

A sustained move below support could increase selling pressure.

Earnings And Analyst Outlook

Arm is scheduled to report its second-quarter fiscal 2027 earnings on Nov. 4.

Wall Street expects earnings of 48 cents per share, compared with 39 cents a year earlier. Revenue is projected to reach $1.38 billion, up from $1.14 billion in the year-ago quarter.

Meanwhile, Arm trades at a price-to-earnings ratio of 300.4, reflecting high expectations for future growth. The stock carries a consensus Buy rating, with an average price forecast of $319. Recent analyst actions include:

• Rosenblatt: Maintained Buy, lowered its price forecast from $270 to $250 on July 31.
• UBS: Maintained Buy, lowered its price forecast from $360 to $320 on July 30.
• Morgan Stanley: Maintained Equal-Weight, raised its price forecast from $202 to $212 on July 30.

MarketDash Edge Rankings

Arm's MarketDash Edge scorecard highlights a sharp contrast between its market momentum and valuation.

• Momentum: Bullish, with a score of 96.19. The reading reflects strong relative performance over the past year.
• Value: Bearish, with a score of 1.25. The low score suggests the stock trades at a substantial valuation premium.

The combination suggests investors remain optimistic about Arm's growth prospects. However, its expensive valuation leaves less room for disappointing results or weaker market sentiment.

Top ETF Exposure

Arm is held by several exchange-traded funds, including:

• VanEck Fabless Semiconductor ETF (NASDAQ: SMHX): 4.07% portfolio weight.
• First Trust International Equity Opportunities ETF (NASDAQ: FPXI): 4.30% portfolio weight.
• Renaissance IPO ETF (NYSE: IPO): 7.50% portfolio weight.

Arm's weighting in these funds means changes in its share price can affect ETF performance. Fund inflows, outflows and portfolio rebalancing can also influence demand for the stock.

ARM Stock Price Action

ARM Stock Price Activity: ARM Holdings shares were down 3.28% at $284.71 during premarket trading on Thursday, according to market data.