The rally in rare earth-related stocks has pushed valuations to levels that aren’t justified by market fundamentals, and investors should tread carefully, according to analysts at Bernstein.
This year’s trade tensions between the U.S. and China have added to price swings in the sector. Shares of MP Materials (NYSE:MP) have climbed more than 14% over the past three months but tumbled over 14% in just the past week. Meanwhile, Critical Metals Corp. (NASDAQ:CRML) has soared roughly 246% during the same three-month span, only to slide around 23% over the last seven days.
The sector extended its decline in premarket trading Monday after U.S. Treasury Secretary Scott Bessent signaled that China is open to “concessions” on rare earth export restrictions following trade negotiations.
China remains the dominant player in the rare earth supply chain, accounting for nearly 70% of global mining output and roughly 90% of processing capacity. These minerals are considered critical for industries ranging from electric vehicles to advanced defense systems.
Washington has been pushing to diversify supply, with U.S. President Donald Trump declaring earlier this month that a landmark agreement with Australia would give the two nations “so much critical mineral and rare earths that you won’t know what to do with them.”
However, Bernstein analysts pushed back against excessive optimism, writing that “hopes of a rare earth demand supercycle are misguided given reviewing historic cycles, modest growth from conventional demand sources, technology substitution, thrifting, overstated belief in humanoid robots, and innovation in permanent magnets from rare earths to other chemistries.”
They emphasized that their call wasn’t about specific companies being overvalued. Rather, they noted that firms backed by government support and long-term offtake agreements “clearly have an edge over companies fully exposed to the public market.”