Running Windows 11 ARM on a Mac with Parallels usually works fine, but I recently had major performance issues. The virtual machines would often became slow and unresponsive to mouse and keyboard inputs. I tried several fixes, such as adjusting the RAM and CPU settings, updating and downgrading Parallels, and freeing up disk space. Nothing worked. Finally, I found a forum post that suggested Spotlight indexing might be the problem. I added the Parallels data directory to Spotlight's ignore list (in the "Privacy" settings), and this instantly fixed the issue.

If you're experiencing similar issues, then try excluding the Parallels directory from Spotlight indexing.