The 38-year-old was set upon by three men in Croft Street, Birchills, near the junction with the A34 Green Lane, at about 4.30am.
A police cordon has remained in place in the road, near Croft Academy throughout the morning, although pupils were able to attend school as usual.
Residents said they have seen a number of incidents near their homes recently, including suspected drug dealing, but are too scared to report anything for fear of retribution.
West Midlands Police said: "We've arrested a teenager in connection with a machete attack on a man in Walsall in the early hours of this morning.
"It happened in Croft Street at around 4.30am. We believe this was a targeted attack and that the 38-year-old was set upon by three men.
"The victim remains in hospital today for surgery.
"Just before 6am we arrested a 17-year-old male on suspicion of wounding. He remains in police custody and inquiries are continuing today to identify the other people involved."
A resident, who did not want to be named, said emergency crews were seen in the area of the Croft Street junction with Lewis Street shortly afterwards.
A West Midlands Ambulance Service spokesperson said: "We were called by police to reports of an assault in Lewis Street, Walsall, at 4.40am this morning.
"An ambulance and paramedic officer attended. Crews treated a man who had sustained potentially serious injuries before conveying him to hospital for further care."