Rare Earths vs. Copper: Should You Buy MP Materials or Freeport-McMoRan?

The rapid build-out of U.S. data centers has revealed very real physical constraints, from the power grid to equipment to the materials needed to build them. At the same time, geopolitical tensions are exposing supply chain vulnerabilities and resource scarcity that lawmakers are scrambling to address.

Two commodities are in the spotlight: rare-earth elements and copper. Rare-earth elements are essential for the permanent magnets used in defense systems, robotics, and electric vehicles. Copper, meanwhile, is critical to building data centers and supplying the enormous amounts of energy they require.

For investors looking to capitalize on the trend for physical materials, which stock offers the better opportunity today: rare-earth producer MP Materials (NYSE: MP) or copper giant Freeport-McMoRan (NYSE: FCX)?

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MP Materials is a top domestic supplier of vital rare-earth and permanent magnets

Rare-earth elements include neodymium-praseodymium (NdPr), dysprosium (Dy), terbium (Tb), gadolinium, and samarium, which are crucial inputs for high-performance permanent magnets (NdFeB magnets). These magnets are unique because they offer high torque-to-weight and power density and are used in electric-vehicle drive motors, humanoid robots, industrial automation, defense guidance systems, and drones.

According to research from The Motley Fool, China controls most rare-earth mining and processing, giving it significant leverage in trade negotiations. Given the importance of rare-earth elements and the permanent magnets they enable, the U.S. is building its own domestic "mine-to-magnet" supply chain.

MP owns and operates the Mountain Pass Mine in California. This is the only scaled rare-earth mining and processing site in the U.S., which gives MP a first-mover advantage over others looking to build their own mine-to-magnet businesses.

In support of this, the Department of Defense (DoD) awarded MP Materials a price protection agreement that guarantees a $110/kilogram price floor for NdPr produced at Mountain Pass. The move helps shield MP Materials from China's predatory pricing, which has historically used state subsidies to drive down rare-earth prices and push Western producers into bankruptcy. This practice caused Mountain Pass's previous owners to go bankrupt in 2015.

MP Materials' offtake agreement with the DoD also includes a 10-year agreement that guarantees at least $140 million of annual EBITDA for MP's second magnet campus. MP also has long-term supply agreements with Apple and General Motors, and has also signed a multi-year contract with an unnamed major U.S. aerospace manufacturer for separated gadolinium oxide.

Freeport-McMoRan benefits from the power grid build-out

While rare-earth elements are vital for permanent magnets, copper is known as the "metal of electrification" for its electrical and thermal conductivity and its role in the power grid. Roughly 65% of copper is consumed in applications that deliver or use electricity. Copper is a key component in data centers, power-grid modernization, and related infrastructure. According to S&P Global, global copper demand could grow by 50% by 2040.

Freeport-McMoRan is one of the world's largest publicly traded copper producers, owning and operating tier-1 assets in North America, South America, and Indonesia. The company dominates the U.S. market, accounting for about 70% of the country's refined copper production, with operations in Arizona, Texas, and New Mexico.

Freeport is using leach recovery techniques to get more from its stockpiles. It's on track to reach an annual run rate of 300 million pounds of copper this year, and it can reach over 800 million pounds by 2030 with this approach. The company is on pace to produce 3.1 billion pounds of copper this year, and another 650,000 ounces of gold as a byproduct.

Like MP Materials, Freeport could benefit from U.S. policies as lawmakers seek strategic trade policies and tariffs on copper imports. Additionally, the U.S. Secretary of Commerce is considering requirements that 25% of copper cathode and concentrate products produced in the U.S. be sold domestically by 2027.

MP Materials vs. Freeport-McMoRan: Which stock best suits you?

Copper demand should remain strong. Deficits are expected to stay elevated through the end of the decade as supply fails to keep pace with demand from data centers, utilities, and other infrastructure projects. For investors seeking a more established, stable business benefiting from data center and power grid build-outs, Freeport-McMoRan is a top copper producer to buy now.

That said, rare-earth materials will also be in high demand, and U.S. policy tailwinds should provide strong long-term support for MP Materials' business. Unlike other rare-earth stocks, MP Materials has a binding agreement with the DoD and a price floor, providing earnings visibility and downside protection.

If you are more aggressive and want exposure to the growing demand for domestically produced rare-earth elements and permanent magnets, with government backing, MP Materials, down 60% from its all-time high, could be the stock for you.

Courtney Carlsen has positions in Apple, MP Materials, and S&P Global. The Motley Fool has positions in and recommends Apple, MP Materials, and S&P Global. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.