USA Rare Earth Stock: Bull vs. Bear

Key Points

• It's not only rare earths where this company has ample growth potential.

• There is still a long way to go before the company completes its three-stage business plan.

• 10 stocks we like better than USA Rare Earth ›

Rising more than 31% since the start of the year (as of this writing), shares of USA Rare Earth (NASDAQ: USAR) have benefited from increasing investor interest in rare earth metals and magnets -- especially as the company nears completion of its rare earth magnet production facility in Oklahoma.

But could the stock continue its exceptional performance throughout the remainder of the year and beyond? Let's see how two Fool.com contributors tackle this question.

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USA Rare Earth has a significant competitive advantage over its better-know rare earths peer

Scott Levine: Although MP Materials (NYSE: MP) has garnered much of the spotlight with respect to rare earths this year, USA Rare Earth has also shone brightly on the radars of investors who closely follow the industry. Unlike MP Materials, which specializes in the production of light rare earths neodymium and praseodymium, USA Rare Earths has potential to produce both light and heavy rare earths in addition to other minerals thanks to the rights it retains to the Round Top deposit located in Texas.

Although light rare earths can by used in the production of magnets, adding heavy rare earths -- like the dysprosium and terbium found at Round Top -- can enhance them, increasing the magnets' heat resistance and making them better suited for certain applications.

Besides rare earths, Round Top contains other mineral resources, including gallium. It's certainly not enjoying the same popularity as rare earths right now, but gallium is a critical material used in semiconductors and defense applications. Similar to rare earths, China controls global production of gallium, presenting a pressing need for the U.S. to shore up domestic supply -- a great opportunity for USA Rare Earth.

According to management, the company's potential to produce heavy rare earths as well as gallium provides USA Rare Earth with a robust market opportunity. In a recent investor presentation, USA Rare Earth pegged the gross domestic product (GDP) of industries that it can serve at over $3 trillion compared to that of MP Materials, which is about $1 trillion.

The company is already gaining attention from customers. In its second-quarter 2025 earnings presentation, management noted that USA Rare Earth has "a dozen initial signed agreements and active engagements with over 70 companies across multiple high-growth industries, we have the potential to sell out our first 1,200-ton production line prior to commissioning its full capacity."

The company's plans could involve substantial capital-raising in the future

Lee Samaha: USA Rare Earth has a bright future, but that doesn't necessarily mean investors in the company will make substantial returns if they invest now. There are numerous uncertainties and unknowns across all three stages of its business plan. The first stage involves the completion of its rare earth magnet production facility in Stillwater, Oklahoma. Management expects to begin production from it in early 2026. It will, initially at least, "be focused on partnering with ex-China suppliers and building or buying the capabilities we need" to supply the materials for the magnet production, according to its SEC 10-K filings.

The second stage involves scaling up production of magnets, which will require capital, as well as expanding supply partnerships to sustain growing output.

Only after the first two stages have established the company's revenue streams will the company embark on the third stage, which involves "developing the mining operations at its Round Top Project." For reference, USA Rare Earth controls the mining rights to Round Top Mountain, a site located near Sierra Blanca, Texas, which contains light and rare earth elements. While management argues that securing supplies from Round Top is not critical to the success of magnet production at Stillwater, it may be vital to the investment case, as it would provide a self-sustainable and domestic supply of rare earth materials for its magnet production.

There are risks at all three stages, not least securing supplies for stages one and two, execution risk associated with expanding facilities in stage two, ensuring adequate revenue (including pricing) in stages one and two, and the usual risks around funding and commissioning of Round Top in stage three.

That's a significant amount of risk for investors to absorb.

Is now the time for you to buy shares of USA Rare Earth?

Since investors have varying risk tolerances, it's impossible to say categorically whether USA Rare Earth stock belongs in any one investor's portfolio. However, for those who are interested in a rare earth stock to complement their position in MP Materials or for those looking for an alternative rare earth investment opportunity, it's certainly worth digging further into USA Rare Earth right now.

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Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.