Forget USA Rare Earth: Why Trump's Bet on This Critical Minerals Play Could Backfire for Investors

By Thomas Niel – Apr 17, 2026 at 12:15AM ESTKey PointsDespite promising developments, high uncertainty remains with USA Rare Earth, a pre-revenue start-up focused on building a rare-earth value chain.It's not guaranteed that the company will receive around $1.6 billion in financing from the U.S. Department of Commerce.Share dilution and execution risk are high as well, calling into question whether now's the right time to enter a position.Nobody can blame USA Rare Earth (USAR +0.44%) for inaction. The early-stage rare-earth minerals exploration company continues to build out its rare-earth value chain, an effort supported in part by the U.S. federal government, as a counter to China's dominance of space. Earlier this month, the company announced an investment in French rare-earth processor Carester. Yet while USA Rare Earth continues to make progress toward its mission, shares have struggled to bounce back after surging at the start of 2026 on promising news. A growing number of investors may be giving greater consideration to the major risks with this speculative growth stock. At least these risks, including funding- and execution-related risks, have me shifting from cautiously bullish to leaning bearish on USA Rare Earth. For now, you may want to wait before even investing $100. Image source: Getty Images. Why USA Rare Earth is far riskier than it seems The main issue with USA Rare Earth is that investors have prematurely declared it a slam-dunk opportunity, where potential upside exceeds downside risk. This is mostly because the U.S. federal government has demonstrated a willingness to financially support this company. ExpandNASDAQ: USARUSA Rare EarthToday's Change(0.44%) $0.08Current Price$18.43Key Data PointsMarket Cap$4.0BDay's Range$17.87 - $18.8052wk Range$8.00 - $43.98Volume10MAvg Vol19MGross Margin-8466.22% In January, the U.S. Department of Commerce entered a nonbinding letter of intent (LOI), proposing to provide USA Rare Earth up to $1.6 billion in funding and loans after it raised an additional $1.5 billion in private capital. Yet while this development did indeed represent progress, it's easy to read headlines related to this news and assume that USA Rare Earth has $1.6 billion "in the bag" to finance its rare-earth value chain build-out. Again, this promise to fund is nonbinding and is still pending full approval. U.S. Rep. Zoe Lofgren of California has already raised concerns about possible conflicts of interest between the USA Rare Earth investment and entities connected to Secretary of Commerce Howard Lutnick. Further congressional scrutiny could threaten USA Rare Earth's ability to tap into this federal funding. Additional risks suggest investors should stick to the sidelines If federal funding doesn't come through for USA Rare Earth, the company may have to scramble for other financing sources or face delays in executing its rare-earth supply chain build-out. The company could end up having to raise far more equity than previously anticipated if the private debt market is far less willing to lend to this early-stage, pre-revenue company. If dilution proves greater than expected, it reduces the potential future upside for new and existing investors. The company previously projected it would reach $2.6 billion in sales and $1.2 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2030. However, so far USA Rare Earth has only made early progress with its Stillwater, Colorado, processing facility and Round Top rare-earth mining site. Other factors, like future prices for rare-earth minerals, cast doubt on this forecast. Previously, I said to "walk, rather than run," into a USA Rare Metals position. Now I believe it's best to stay on the sidelines, at least until the government financing package is approved. Investors may also want to opt for a growth ETF with exposure not only to this and other rare-earth start-ups but also to other speculative growth plays.Read NextApr 3, 2026 •By Lee SamahaHere's Why USA Rare Earth Stock Crashed in MarchApr 2, 2026 •By Justin PopeIs USA Rare Earth Stock a Buy Now?Mar 30, 2026 •By Scott LevineWhy USA Rare Earth Stock Crashed TodayMar 24, 2026 •By Thomas NielWhere Will USA Rare Earth Stock Be in 5 Years?Mar 21, 2026 •By Courtney CarlsenUSA Rare Earth vs. MP Materials: Which Mining Stock Should You Buy in 2026?Apr 17, 2026 •By Dominic BasultoThe $700 Trillion Reason Why I'm Buying Circle Stock Hand Over FistAbout the AuthorThomas Niel is a contributing Analyst at The Motley Fool, covering publicly traded companies in the consumer goods and technology sectors. Prior to the Motley Fool, Thomas was a contributing Analyst for several online investing publications, including InvestorPlace, Seeking Alpha, and TipRanks. He also has past career experience in the accounting and government contracting industries. He holds a B.B.A. in Accounting from Marymount University. Thomas won his school's geography bee in the fifth grade, but retired from the professional geography bee circuit shortly thereafter.TMFThomasNielStocks MentionedUSA Rare EarthNASDAQ: USAR$18.43(+0.44%)+$0.08*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.