Is USA Rare Earth Stock a Buy?

Most investors chasing rare-earth miners focus on the wrong opportunity.

For now, China dominates because it has built the processing infrastructure that turns raw materials into specialized metals for magnets. Those magnets power things like F-35 fighter jets and electric vehicle motors. And Western nations have depended on Chinese suppliers for decades.

But USA Rare Earth (NASDAQ: USAR) just made a $100 million acquisition to change that. Combined with confirmed White House discussions about federal support, the company's shares have soared this year. Is USA Rare Earth stock a buy on this deal? Let's consider the company's core value proposition and key risk factors to find out.

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Buying the factory that brings it all together

On Sept. 29, USA Rare Earth announced it would acquire Less Common Metals (LCM) for $100 million in cash plus 6.74 million shares. LCM has run a 67,000-square-foot facility in Britain producing rare-earth metals and alloys for 30 years.

It's the only facility of its kind operating at commercial scale outside China, supplying defense contractors, automakers, and magnet manufacturers across the U.S., Europe, and Asia.

USA Rare Earth is building a Texas mine for rare-earth ore and an Oklahoma factory for finished magnets. LCM fills the critical gap: processing ore into refined metals.

The company secured a $125 million equity investment at $15 per share, and former Siemens USA CEO Barbara Humpton took over as CEO on Oct. 1.

The White House is writing checks

On Oct. 3, Humpton told CNBC that USA Rare Earth is in "close communication" with the White House. The stock jumped 23% that day, pushing the company's market capitalization to nearly $3 billion.

The speculation has precedent. In July 2025, the Department of Defense (DOD) invested $400 million in MP Materials via preferred equity and set a 10-year $110-per-kilogram price floor for its NdPr rare-earth products stockpiled or sold, making the DOD MP's largest shareholder.

A week earlier, the Department of Energy restructured Lithium Americas' financing, adding 5% equity via warrants tied to a roughly $2.23 billion loan. This week, Critical Metals stock is surging on reports that administration officials are discussing converting a $50 million Defense Production Act grant into an equity stake for the company's Tanbreez rare-earth project in Greenland.

The risk is in the execution

USA Rare Earth trades at a high market value of $3 billion despite producing no meaningful commercial magnet revenue. USA Rare Earth made its first sintered magnets in January 2025, but the operation remains in early stages.

The valuation leans on multiple unproven steps: integrating the newly acquired U.K. metals producer, ramping Oklahoma magnet output, advancing the Round Top, Texas, resource, and securing government support. None is guaranteed.

The LCM acquisition adds credibility -- a decades-old outside-China metals and alloys facility with established customers -- but standing up a full mine-to-magnet chain will take years and significant capital. Consider the stock a story with high execution risk until commercial magnet sales and offtakes are visible.

Getting ahead of the fundamentals

The stock's sharp gains this year reflect two views. Bulls see the only Western company building a complete rare-earth supply chain at the exact moment Washington is paying to make it happen.

Bears see a $3 billion valuation for a company with minimal revenue and years of execution risk ahead. But traditional fundamentals haven't weighed on rare-earth stocks in 2025.

The market is pricing in artificial intelligence (AI)-driven demand for magnets and Washington's willingness to subsidize strategic industries. China controls approximately 60% of global rare-earth mining and 90% of rare-earth processing as of 2025.

If USA Rare Earth delivers and wins government backing similar to MP Materials, it could charge premium prices to defense contractors, automakers, and industrial customers desperate for non-Chinese suppliers.

The risk-reward calculation

Aggressive investors may see USA Rare Earth as a way to bet on Washington's push for supply chain independence and AI-driven demand for rare-earth magnets and be comfortable with the risk. Conservative investors should hold back until the company demonstrates real commercial sales from its Oklahoma facility or secures binding long-term contracts.

George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.