2 Rare Earth Stocks the U.S. Government Doesn't Want to Fail

The global contest for rare earth minerals has entered a new, more urgent phase.

China continues to leverage its near-monopoly on processing through export controls, even as it signals a temporary pause on new restrictions. Now a second rival has joined the field: Russia, with President Vladimir Putin ordering a national strategy to develop the country's vast reserves.

As the geopolitical stakes rise, a baffling paradox has emerged in financial markets: U.S. rare earth stocks have plummeted. This market panic, driven by headlines of a temporary U.S.-China trade truce, is missing the bigger picture. The actions of China and Russia are not a bearish sign for America's domestic producers; they are the very reason the U.S. government is now going all-in on ensuring its own champions win.

The U.S. response to this geopolitical challenge has been to act as a powerful strategic investor, systematically removing the biggest risks for its most advanced players.

The recent $1.4 billion public-private partnership with startups Vulcan Elements and ReElement Technologies demonstrates that the government is not just selecting one company, but rather building an entire industrial ecosystem. This broad commitment from the U.S. government makes the roles of the most advanced players like MP Materials (NYSE: MP) and USA Rare Earth (NASDAQ: USAR) even more critical.

MP Materials: Anchored by Government Support and Scaling Fast

As America's only scaled operator, MP is successfully transitioning into a fully integrated manufacturer. 

The company's third-quarter 2025 earnings report results showed record NdPr production of 721 metric tons, a 51% year-over-year increase.

While total revenue declined as planned, resulting from ceasing low-margin sales to China, the high-value Magnetics segment saw revenues grow to $21.9 million. This progress is supported by a formidable balance sheet, featuring over $1.94 billion in cash and short-term investments.

Government support provides MP Material's with a three-pronged shield against market uncertainty:

• Price Risk: A 10-year price floor agreement with the Department of Defense (DoD), which commenced on Oct. 1, 2025, provides an unprecedented revenue backstop. If market prices for Neodymium-Praseodymium (NdPr) fall below a set level, the DoD pays the difference, guaranteeing a baseline of revenue stability and shielding the company from Chinese price manipulation.
• Market Risk: Long-term offtake agreements are in place with the DoD, Apple (NASDAQ: AAPL), which has already made an initial prepayment of $40 million, and General Motors (NYSE: GM). These deals provide a guaranteed, high-volume demand base for the company's high-value magnets.
• Financial Risk: The DoD's $400 million direct equity investment has significantly strengthened MP's balance sheet, solidifying its role as a foundational pillar of the domestic supply chain.

USA Rare Earth: On Track and Over-Funded

USAR is executing a disciplined, phased approach that is now massively capitalized.

The company recently announced a definitive agreement to acquire UK-based Less Common Metals, a transformational step that provides immediate metal and alloy manufacturing capabilities. This move significantly accelerates its mine-to-magnet strategy.

Following a $125 million investment and the exercise of warrants, the company's cash position has swelled to over $400 million, providing a long financial runway. With its Stillwater magnet facility on track for Q1 2026 commissioning, USAR is poised to become the next producer online. This near-production status makes it a prime candidate for future government contracts and support.

For USAR, the national urgency creates a powerful tailwind. The strategic imperative to establish a second secure domestic source of magnets creates a ready-made, high-demand market for USAR's future output. This is validated by a reported sales pipeline of over 2,000 tons and new agreements with customers like ePropelled and Enduro Pipeline Services.

Fuel for the Fire: Why Bearish Bets Could Backfire

Protected by this government shield, both MP Materials and USA Rare Earth are demonstrating evident operational progress, turning strategic blueprints into tangible results that are showing up in the numbers.

Adding a powerful technical dynamic to the bullish case is the extremely high level of bearish bets against the sector. Short interest, the number of shares sold by investors betting the price will fall, currently stands at an average number between 18% and 24% for the critical metals sector as a whole. Short interest stands at a compelling 17.89% for MP Materials and 14.45% for USA Rare Earth.

This extreme pessimism creates a coiled spring scenario.

When a stock is heavily shorted, any positive news can force short-sellers to buy back shares to close their positions. This rush of forced buying creates a feedback loop, driving the stock price up rapidly in an event known as a short squeeze.

With both companies operating in a news-rich environment and delivering on strategic milestones, the high short interest represents significant potential fuel for a sharp rebound.

A Strategic Buying Opportunity?

The market is selling the headlines, but the smart money follows the data.

The recent sell-off has created a stark valuation disconnect. Analyst consensus remains a Moderate Buy for both companies, and the price drops have made their targets even more compelling. The average price target now implies a potential upside of nearly 50% for MP Materials and over 64% for USA Rare Earth.

The race for rare earth supremacy is accelerating. While market sentiment may remain volatile, the U.S. government is clearly signaling who it is backing to win.

For investors with a long-term horizon, the market's current fear may have just put a strategically vital sector on sale.

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