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You can almost hear the low hum of trading algorithms parsing keywords like 'Trump' and 'rare earth' in the same sentence. For USA Rare Earth (USAR), that specific combination has been rocket fuel. The stock has surged—up over 60% in the past month, to be more exact—on a wave of speculation that feels both familiar and incredibly precarious, leaving many to wonder Why Shares in USA Rare Earth Popped Higher Today.
The market isn’t reacting to a blockbuster earnings report or a breakthrough in mining technology. It’s reacting to a narrative. Specifically, it’s pricing in the possibility that USAR will become the next MP Materials, a company that saw its fortunes transformed by a multi-billion-dollar public-private partnership with the U.S. government.
When USAR's CEO, Barbara Humpton, confirms the company is in "close discussions" with the Trump administration, the market treats it not as a possibility, but as a prelude. Traders, institutional and retail alike, are following a well-worn playbook. They saw what happened with MP stock. They see the options interest in USAR spike at the $30 strike price. They hear the chatter on JPMorgan podcasts about the administration’s focus on critical minerals.
The result is a stock price detached from current fundamentals, tethered instead to a singular, binary outcome: a government deal. But what is the rational price for a political probability?
The Anatomy of a Narrative-Driven Rally
To understand the mechanics of USAR's recent performance, one has to look past its balance sheet and focus on geopolitical strategy. The entire thesis rests on the premise of reducing American dependence on foreign-sourced rare-earth magnets, a critical component in everything from F-35 fighter jets to electric vehicles. China dominates this market, and that strategic vulnerability is the foundation upon which this entire investment narrative is built.
USAR is positioning itself as a key part of the solution. The company is on track to begin producing rare-earth magnets at its facility in Stillwater, Oklahoma, by 2026. It recently acquired Britain’s Less Common Metals (LCM), a leading rare earth metal and alloy producer outside of China, for a considerable sum ($100 million in cash and 6.74 million shares). The long-term plan is to vertically integrate by sourcing materials from its own Round Top Mountain mining rights in Texas.
This is a capital-intensive, multi-year strategy. It requires immense funding, and that’s where the government narrative kicks in. The market is betting that Washington will see USAR not just as a company, but as a piece of national security infrastructure, worthy of direct investment. This isn't an unreasonable assumption, given the precedent.
But a rally built on a single catalyst is inherently fragile. It functions less like a traditional investment and more like a call option on a political decision. The upside could be substantial if a deal materializes, but what if it doesn't? Or what if the terms are less favorable than the market anticipates? The current stock price reflects near-certainty on an event that is, by definition, uncertain.
Deconstructing the Valuation Gap
This brings us to the most significant discrepancy in the USAR story: the valuation. A discounted cash flow (DCF) model published by Simply Wall St, as part of an analysis titled USA Rare Earth (USAR): Assessing Valuation After Recent 60% Share Price Surge, puts the company’s fair value at an astonishing $81.09 per share, while the stock currently trades around $22.71. That suggests an upside of over 250%.
A DCF model is, in essence, a story told with numbers. It projects a company's future cash flows and discounts them back to today's value. For a company like USAR, which is still in a high-growth, pre-profitability phase, a DCF can be a useful tool to capture future potential. However, its output is entirely dependent on the assumptions fed into it.
And this is the part of the analysis that I find genuinely puzzling. To arrive at an $81 valuation for a company that is years away from significant cash flow from its primary mining asset, one must make some heroic assumptions about revenue growth, profit margins, and, most critically, the discount rate. That $81 figure isn't a forecast; it's a blueprint for a skyscraper. Right now, all that exists is a promising patch of land and a potential handshake with the city planner. The blueprint assumes the permits will be approved, the funding secured, construction flawless, and tenants lined up to pay premium rent.
What happens if the discount rate used is too low, failing to properly account for the immense execution risk of building out a mine? What if the timeline for profitability is pushed back by a few years? Small changes to these inputs can cause the fair value estimate to collapse.
I've looked at hundreds of these models for pre-production resource companies, and an implied valuation this far above the trading price is a significant outlier. It signals that the model is pricing in a perfect-world scenario—one where the government deal comes through generously, the Oklahoma facility scales without a hitch, and the development of Round Top Mountain proceeds on time and on budget. The market, by pricing the stock at $22, is telling us it believes in the story, but it’s applying its own, much higher, discount rate to the outcome. Who is right?
A Price Built on Hope, Not Cash Flow
My analysis suggests the current market price of USAR is a rational, if speculative, bet on a political outcome. The $81 DCF valuation, however, feels more like an academic exercise in what could be if every single star aligns. It is not, in my view, a practical tool for assessing the company's value today. The gap between the two figures represents the market's healthy skepticism about execution risk.
An investment in USAR right now isn't an investment in its assets or its business plan in isolation. It's a leveraged bet on a government contract. If that contract comes through on terms as favorable as the MP Materials deal, today's buyers will be rewarded handsomely. If the deal is delayed, is less generous, or falls through entirely, the narrative evaporates, and the stock price will have to find a new floor based on fundamentals that are, at present, nascent and years from maturity. The risk is clear, quantifiable, and asymmetric.
