Nobody can blame USA Rare Earth (USAR +0.43%) 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.
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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.
NASDAQ: USAR
Key Data Points
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.
