USA Rare Earth (NASDAQ: USAR) soared nearly 30% this morning after the US Department of Commerce confirmed plans of investing about $1.6 billion in the critical minerals startup.
However, while that number sure is impressive on the surface, a closer look at the deal’s structure and the company’s fundamentals suggest this rally is an opportunity to trim exposure – not chase momentum.
USAR stock has already started selling off in recent hours as the initial hype fades. At the time of writing, it’s hovering around $28 only versus the intraday high of about $32.
Why federal stake may not prove positive for USAR shares
Uncle Sam is set to become the lead investor in USA Rare Earth stock, but retail shareholders must question if they’re being used as exit liquidity for a pre-revenue miner with a four-year wait for its first ounce of production.
As part of its agreement with the Nasdaq-listed firm, the US government will receive 16.1 million shares and 17.6 million warrants priced at $17.17, according to a press release on January 28th.
With the USAR shares trading at north of $28, the Trump administration and PIPE investors (who bought in at $21.50) are already sitting on massive paper gains.
Therefore, if and when the government or institutional partners decide to de-risk, the share volume of new shares could cap any further upside for years.
Simply put, as these new shares and warrants enter the float, they create a significant “overhang”.
Fundamentals warrant selling USA Rare Earth stock today
The federal stake news has pushed USA Rare Earth’s market cap to well past $4 billion on Monday.
However, the critical minerals startup remains a speculative, pre-revenue company.
According to its own “Accelerated Mine Plan”, commercial production at the Sierra Blanca site in Texas is not expected to begin until late 2028.
What it essentially means is four years of “burn” where this company will be spending hundreds of millions on construction (CAPEX) with zero incoming sales.
In the mining world, four years is an eternity – permitting delays, environmental lawsuits, and technical failures at the pilot stage are the norm, not the exception.
In other words, USAR stock at current levels reflects “perfection” in execution that rarely happens in mining.
How to play USAR stock post government investment?
Finally, while a government stake provides a safety net, it also ties USA Rare Earth to a “specific” political agenda.
Experts often warn that government-backed firms suffer from “blurred accountability”. Instead of making decisions based purely on profit and shareholder value, USAR must now answer to the Commerce Department.
If political winds shift in the 2028 election or if trade relations with China unexpectedly thaw, this “strategic” investment could lose its priority status.
We have seen similar rallies in the likes of MP Materials and Trilogy Metals fade as the “novelty” of government backing wears off and the hard work of building mines begins – and the same could happen with USAR stock in 2026.
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