2 Supercharged Trends That Could Send MP Materials Stock to New Heights
Key Points
The U.S. is taking extensive action to rebuild its supply chain for rare-earth elements and other vital minerals.
MP Materials entered into a historic public-private partnership with the U.S. Department of Defense.
Rare-earth magnets are also vital for data centers, automation, and other advanced technologies.
Last year, the U.S. government made a historic investment in MP Materials (NYSE: MP) by taking a stake in the mining company as the nation rebuilds its stockpile of crucial materials. The stock surged to $100 in the months following the news but has since fallen 42% from its 52-week high. However, there are two supercharged trends that could send the stock higher.
MP Materials has a historic deal with the U.S. government
Essential minerals are fundamental building blocks of modern technology, defense systems, and clean-energy products. Rare-earth elements are crucial for magnets used in radar and defense technologies, while electric vehicles use a significant amount of lithium, cobalt, and nickel.
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What puts the U.S. in a precarious position is China's dominance of the supply chain for these minerals. According to research from The Motley Fool, China controls roughly 70% of rare-earth extraction and 90% of its processing. The need to rebuild domestic supply chains of these minerals is the first trend that could power MP Materials' stock higher.
The company operates the only active rare-earth mining and processing site in the U.S., in Mountain Pass, California. Last year, the U.S. Department of Defense (DoD) and MP entered into a historic public-private partnership for the company's neodymium-praseodymium (NdPr) products. As part of this agreement, the U.S. established a price floor of $110 per kilogram for NdPr products that are stockpiled or sold. In return, the DoD took a 15% ownership stake in the company's stock.
This price floor is unusual but considered necessary because China heavily subsidizes production of rare-earth elements. With a price floor, the U.S. is locking in a price at which it will buy MP's products, preventing the company from being undercut by foreign competitors, which should accelerate supply chain independence and protect it from nonmarket forces.
Image source: Getty Images.
High-powered magnets for advanced technologies
Another trend that could help push the stock higher is the boom in artificial intelligence (AI) and automation hardware. AI data center cooling systems, industrial robotics, and automated manufacturing devices all rely on high-performance rare-earth permanent magnets.
Hyperscalers are building huge data centers, which require advanced liquid-cooling systems that rely on high-efficiency pumps driven by powerful NdPr magnets. And advanced robotics can require dozens of high-torque electric motors, each packed with NdPr magnets to achieve precise, rapid movements.
The company has a $500 million long-term agreement with Apple to build domestic infrastructure to recover rare-earth magnets from recycled electronics and supply chain waste. The company also has a long-term deal with General Motors to supply U.S.-sourced rare earths, alloys, and magnets for its next-generation electric vehicles.
MP management is taking steps to expand its production capacity and is targeting 2028 for the launch of a facility that will increase production tenfold to 10,000 metric tons of neodymium-iron-boron rare-earth magnets per year. With strong tailwinds from government reshoring of supply chains and technological innovations, MP Materials is a top rare-earth stock to benefit from these trends.
Courtney Carlsen has positions in Apple and MP Materials. The Motley Fool has positions in and recommends Apple and MP Materials. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.