Could Buying USA Rare Earth Stock Today Set You Up for Life?

Right now in your device, whether it's a laptop, smartphone, or tablet, there's a high-performance magnet made of rare-earth metals and critical minerals. Odds are that magnet was manufactured in China: Roughly 94% of sintered permanent magnets were produced there in 2024.

The dominance of China in the rare-earth market, notwithstanding some meaningful Western output of permanent magnets, has made the U.S. government anxious to build up its own production of these nifty magnetic workhorses. Under that larger federal agenda, a handful of metals companies have been diligently positioning themselves to build a domestic supply chain of magnets, from mining to metals to the finished product.

One of those companies is USA Rare Earth (NASDAQ: USAR). And, if this start-up's plans become a reality, early investors could be set up for life.

Image source: Getty Images.

What USA Rare Earth does -- and why it matters

USA Rare Earth is a mining company focused on building a domestic supply chain for rare-earth magnets and critical minerals. Its flagship project is the Texas Round Top Deposit, a huge polymetallic body that contains 15 of 17 rare earth elements, plus lithium and other minerals.

The company's plan long-term is to extract rare-earth ore from its Round Top site and process it at a magnet facility in Oklahoma, where it will be manufactured into high-performance magnets for electric vehicles (EVs), wind turbines, defense systems, electronics, and other high-tech applications.

USA Rare Earth is also pioneering its own processing techniques at its research and development (R&D) facility in Colorado with the purpose of lowering extraction costs and reducing environmental impact.

The company's "mine-to-magnet" strategy would make it one of the few fully integrated rare-earth companies outside of China. Its Round Top deposit also contains one of the most balanced suites of viable rare-earth metals in the U.S., with some metals, like dysprosium (DY) and terbium (Tb), currently lacking domestic capacity for production at scale. In other words, if USA Rare Earth can make Round Top operational, it could become one of the only -- if not the only -- domestic suppliers of certain rare-earth metals.

How USA Rare Earth could still disappoint

Despite its promising position, USA Rare Earth is not immune to risk. Indeed, the most glaring weakness right now is the company's lack of meaningful revenue. No revenue means this company is dependent on financing to fund research and early-stage activities, which, given the capital intensity of mining, can only last so long.

All of its big plans -- the mining, the processing, the manufacturing -- are just that: plans. The company has no track record of success, no producing facilities, no magnet output. And until its magnet plant, which remains under construction, is operational, USA Rare Earth will likely continue to burn cash and report losses.

A fully integrated mine-to-magnet business sounds excellent on paper, but in reality, that's three primary businesses we're talking about (mining, processing, manufacturing), which compounds executional risks and makes coordination a lot more complex.

For example, USA Rare Earth plans to finish its Oklahoma magnet facility in the first quarter of 2026, but Round Top isn't expected for production until late 2028. In the meantime, where's USA Rare Earth going to get the rare-earth feed to make its magnets? Not from Round Top.

Can USA Rare Earth set you up for life?

Right now, USA Rare Earth has a market cap of about $2.7 billion, despite having no meaningful revenue. The stock is trading on the expectation that its mine-to-magnet strategy works and that demand for its product -- high-performance magnets -- will deliver blockbuster earnings for the effort required to manufacture them.

If that narrative becomes a description of its success story, then buying the stock at today's price could certainly set you up for a sizable gain. But just know the risks: This is a start-up in a capital-intense industry with no track record of successfully mining the rare-earth materials it's aiming to extract. There will likely be hiccups -- maybe some disappointing quarters -- and it could be several years before meaningful revenue is generated.

It's also not the only player in this field. MP Materials (NYSE: MP) has a viable mine in Mountain Pass, California, is already producing rare-earth concentrates, and has already built a magnet factory. MP Materials, too, faces its own execution risks, but it's further along in manufacturing magnets at scale than USA Rare Earth.

USA Rare Earth stock, then, is a speculative play on the future of rare-earth mining in the U.S. Aggressive investors who understand the risks may want to start a small position, while more conservative investors may want to wait for more tangible results.

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