MP Materials: The Rare Earths Are Hot! But Is This a Mistake?

TradingKey - MP Materials(NYSE:MP) is one of the most talked about rare earth resources over the past year. As more investors try to get an idea of how important domestic rare earth production is to the growing technology and defense sectors, they are growing concerned about the potential for geopolitical risk within their supply chain. While shares have produced impressive gains for investors, some recent price action (sideways) as well as changing market sentiment indicate a complicated risk/reward situation that requires careful analysis by potential investors.

The U.S. Rare-Earth Pivot

There is one commercial rare-earth mine within the United States located in Mountain Pass, Ca. The only commercial rare-earth mine is operated by MP Materials and manufactures rare-earths such as Neodymium and Praseodymium, which are common inputs for high-strength permanent magnets found in Electric Vehicles (EV), Wind Turbines, Consumer Electronics, and Defense Systems.

Because of the extensive amount of global production and processing currently dominated by China, rare-earths have become a strategic component of our economy. If China's ability to export were affected by trade restrictions or limitations, the repercussions would be felt throughout the entire global electronics ecosystem. The U.S. has increased policy onshoring for rare-earths and magnets. As such, the U.S. markets have begun creating partnerships and supporting sources for U.S.-based companies through both government partnerships and direct government support.

The Strategic Position and Positive Factors for MP materials

Rare Earth Supply Chain Importance 

MP Materials’ central value creation incentive is to be the western source of rare earth materials and the production capabilities for magnets related to rare earth materials. This status has been verified through an abundance of institutional and governmental support, including the multi-billion dollar agreement/mp agreement entered into with the U.S. Department of Defense (DoD). Through this arrangement, the DoD invested through preferred stock and has a commitment to long-term pricing floor purchase of magnets from MP, thus ensuring demand for MP's output and representing a significant investment in MP.

There is a convergence of interests between MP’s strategic alignment and the DOD's mission of enhancing national security while simultaneously increasing industrial competitiveness. Recent reviews indicate a growing acceptance of MP's role in establishing a domestic supply chain for magnets, particularly in connection with the broader efforts to reduce reliance on imported material.

Path of Growth and Industry Recognition

Expansion and Diversification of Production

MP Materials Company has been rapidly increasing its production of neodymium-praseodymium oxide from about 1,500 tons per year to near 40,000 tons per year, including increases in neodymium-praseodymium oxide sales volume for magnetic precursor products.

The operational improvements that led to the ramp-up in neodymium-praseodymium oxide production are beginning to produce benefits in revenue growth and market position for MP Materials Company.

However, the most recently highlighted improvements for MP Materials Company are also occurring downstream through the commencement of magnet alloy and finished magnet production. Once the magnet production starts contributing directly to sales, it represents an important step that could change the mechanism of transferring value from raw materials towards more highly margined products. This vertical integration is paramount to generating sustainable industrial profits from rare earth supply potential.

Market Analysts & Ratings

Positive momentum among institutional analysts toward rare-earth plays has been evident. Recently, Morgan Stanley upgraded MP Materials from Neutral to Overweight due to the company's strategic position in the US supply chain and its strong performance year-to-date. The firm also raised the price target for the company.

Positive news across the markets (especially with increased attention to critical minerals) has helped propel the entire sector higher at various times, including MP and other rare-earth stocks.

Pricing And Assessment Of Valuation

Valuation issues have come into play despite the large majority of thematic tailwinds facing MP Materials. According to some industry observations, MP Materials' stock price appears to be discounting the majority of the major catalyst events (i.e., government support, strategic partnership) and, therefore, will likely not appreciate significantly in the short term until MP Materials gives more substantive operational updates.

Indeed, although MPM has enjoyed a significant increase of at least three times in stock prices during the past year, its stock has showed a sideways trend as of late, indicating that the market is trying to balance the excitement over the potential demand for rare earths, with the market's uncertainty regarding the timing and fundamentals of rare earth supply and demand.

Competitive Alternative and Context

Some analysts believe that there are other rare-earth players with lesser exposure or earlier progression stages that will perform better from a near-term perspective than the primary rare-earth players. Smaller competitors have recently been mentioned as representative of possible alternative companies to capitalize on rare-earth supply windfall opportunities; however, many times these companies have a higher execution risk, so investors must determine how much risk they are willing to take.

At the same time, broader U.S. policy initiatives (such as a potential infusion of capital for additional critical mineral companies) have caused a broad race to rise across the rare-earth sector and have confirmed that MP Materials is very much part of a much larger thematic trend.

Diverging Perspectives and Establishing Risks

Despite a few bumps along the way, MP Materials continues to grow at a significant rate. The company is currently in the process of amassing a large amount of capital through the continuous development of its refining and magnet production facilities. Even though there is still a large amount of money being spent on these operations, profitability will eventually come.

Analysts expect that returns will start to materialize after late 2025 or into 2026 based on the performance of the company's operations in the short term (i.e., how quickly the operations can get to profitability).

Geopolitical instability (e.g., a temporary easing of trade tensions, changes in China’s export policies) may adversely affect the near-term impact of U.S. supply chain initiatives, negatively impacting the valuation multiples of rarer assets like those of MP and its competitors.

How Investors Should Interpret MP Materials Stock

For long-term investors, MP Materials represents a strategic bet on reshoring a critical input for future tech and defense infrastructure, with rare-earth elements playing a central role in electrification, automation, and national security. Its partnerships, policy backing, and downstream development position it uniquely among miners and industrials.

However, the valuation today already embeds a significant portion of the long-term narrative. Investors seeking mp stock exposure should weigh the company’s strategic importance against execution risk, capital intensity, and potential near-term volatility if macro or policy conditions shift.

A balanced approach could involve monitoring quarterly production milestones, magnet product revenue trajectories, and policy developments as leading indicators for whether current valuation multiples remain justified. Until those milestones are consistently met, MP Materials remains compelling for strategic exposure, but potentially best suited for investors comfortable with thematic and multi-year holding periods rather than short-term traders.