Why Rare Earth Stocks Struggle When Government Subsidies Disappear

When the U.S. Department of Commerce announced it would extend a $1.3 billion CHIPS Act loan and invest $277 million in equity to USA Rare Earth, investors were thrilled. The stock jumped nearly 8% on the positive news. But euphoria turned to disappointment within days. Shares have since plunged, erasing all gains and more—a stark reminder that rare earth stocks remain vulnerable when government support becomes uncertain.

The Policy U-Turn That Spooked Investors

The culprit behind the selloff is simple: the Trump administration is pulling back from a key commitment. According to Reuters reporting, the government has decided not to guarantee minimum prices for U.S. critical minerals projects, including rare earth mining operations. This reversal represents a significant shift in Washington’s approach to securing domestic mineral supply chains.

The reasons cited are practical: insufficient congressional funding has been allocated, and policymakers acknowledge the complexity of setting artificially supported market prices. Yet this decision sends shockwaves through the sector because it contradicts how the government has handled similar projects just months earlier.

MP Materials Got a Sweetheart Deal—USA Rare Earth Didn’t

The contrast is hard to miss. Last year, the U.S. Department of Defense invested $400 million in MP Materials, a rival of USA Rare Earth. More importantly, DOD sweetened the deal by guaranteeing to purchase all of MP Materials’ rare-earth neodymium-praseodymium output at a floor price of $110 per kilogram, with that support locked in for a full decade.

Sources now reveal that federal officials view that arrangement as a misstep. They’ve concluded the price guarantee mechanism was too generous and have decided against extending similar arrangements to other government-backed projects. This list includes not just USA Rare Earth, but also Lithium Americas and Trilogy Metals—all seeking federal support during a critical period for rare earth stocks and domestic mineral security.

No Price Floor Means Real Financial Risk

The economic logic behind this policy change is straightforward: price guarantees function as government subsidies when market prices fall below the floor. If the government refuses to set a floor, then rare earth stocks like USA Rare Earth face genuine financial exposure.

The implications are direct and troubling. If USA Rare Earth operates at a loss—and analysts currently forecast a $252 million loss for the year—the company absorbs those losses without government intervention to soften the blow. Investors who purchased shares banking on implicit government protection suddenly face a different calculus. Rare earth stocks are no longer backed by the safety net many assumed existed.

What the Numbers Tell Us About Rare Earth Stocks Right Now

Before committing capital to rare earth stocks in this environment, consider what professional investment advisors are actually recommending. Research teams, including those at Stock Advisor, have identified what they believe are the 10 most attractive equity positions for investors at this moment. USA Rare Earth did not make the list.

Historical context matters here. When Netflix appeared on Stock Advisor’s recommendations on December 17, 2004, a $1,000 investment would have appreciated to $456,457. When Nvidia made the cut on April 15, 2005, that same $1,000 grew to $1,174,057. These examples illustrate why expert stock selection matters—especially in volatile sectors.

The data through January 29, 2026 shows Stock Advisor’s average portfolio return of 950%, substantially outpacing the S&P 500’s 197% performance. If rare earth stocks were truly compelling opportunities, the analytical consensus would likely reflect that conviction.

The takeaway for investors: government policy unpredictability, combined with genuine financial losses, makes the current environment particularly risky for rare earth stocks. Market support, once assumed, has evaporated. That’s a fundamental change that transforms how the sector should be evaluated.