Is USA Rare Earth the Smartest Investment You Can Make Today?

Wall Street is a voting machine in the short term and a weighing machine over the long term, and emotions can lead investors to make questionable choices on a day-to-day basis. That's the backstory that you need to keep in mind if you are considering buying USA Rare Earth (NASDAQ: USAR).

Here's why this company's story is so exciting and why the smartest move could still be to watch this stock from the sidelines (or to buy one of its peers).

What does USA Rare Earth do?

USA Rare Earth's name is intended to convey a great deal about its business. The company's primary goal is to mine for and process rare-earth metals with a focus on U.S. production. These metals are used in everything from smartwatches to missile defense systems. Without rare-earth metals, the modern world wouldn't be possible.

Image source: Getty Images.

Most rare-earth metals are sourced today from China. That has always been a supply chain issue, but the problem has come to the fore thanks to the tariff negotiations that have been taking place around the world. Rare-earth metals are one of China's biggest negotiating chips, and it has made it clear that it will limit access to these products to gain the upper hand.

That's not surprising at all. In fact, it is likely a good decision from a bargaining perspective. However, it has prompted other countries to seek alternative suppliers of rare-earth metals. In July, MP Materials (NYSE: MP) announced that the U.S. government was making a big investment in the company to support its expansion efforts. That was followed up by a partnership with Apple and a stock offering, with the total capital raised summing to roughly $1.5 billion.

Like USA Rare Earth, MP Materials is aiming to establish a business centered on the mining and processing of rare-earth metals. Only, MP Materials appears to be a bit further along in the process.

The problem with USA Rare Earth

That said, both stocks have been shockingly volatile in 2025, largely due to news flow. USA Rare Earth's stock rose more than 230% at one point, but then tumbled. It is now up by about 20% for the year. That's a shocking swing, matched by MP Materials, which rose over 500% at one point. It is still up 245% or so after a large drawdown. One big difference here is the involvement of the U.S. government in MP Material's future. USA Rare Earth doesn't have that same backing.

However, there's another not-so-subtle difference here that investors need to understand. MP Materials has a producing mine. USA Rare Earth has plans to build a mine, which is still just in the feasibility stage. While it currently has the ability to recycle and process rare-earth metals, the big story here is the mining opportunity -- only the mine is years away from completion, and a lot could go wrong between now and then.

The huge spike in USA Rare Earth's share price was likely news-driven, occurring roughly at the time the company announced the acquisition of a company that recycles rare-earth metals. That was also the point where the enthusiasm for MP Materials hit its peak.

The long-term story for USA Rare Earth remains high-risk and uncertain. Only the most aggressive investors should consider it, as it is currently losing money and is likely to continue doing so while making the massive capital investments necessary to build a mine.

Probably not the smartest choice

For most investors, USA Rare Earth is unlikely to be a smart investment choice. The risk is huge, and the potential rewards remain highly uncertain as the company's plan to build a rare-earth metals mine is years away from fruition.

If you are interested in a rare-earth stock, a better choice will probably be MP Materials, which is further along in its development as a rare-earth miner. However, even then, it might make sense for investors to watch from the sidelines until additional milestones have been reached, such as positive earnings.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.