Rare earths are used in many parts of modern military systems, such as the Tomahawk missile, which relies on samarium-cobalt magnets in its actuators and guidance tail fins to withstand high heat. 

For years, the U.S. has been overly dependent on China, which controls about 80% of the world’s rare earth supply.  However, as we’ve learned the hard way, that has to change. After all, without rare earths, the world can’t produce the millions of electric vehicles government leaders want on the roads. 

We can’t produce smartphones, computers, flat panel televisions, wind turbines, electric vehicle batteries, computer chips, defense equipment, semiconductors, digital cameras, or catalytic converters.  Even the U.S. Department of Defense could run low on rare earths for rare earths and other warfighting products.

The good news is that the world is on its way to breaking its dependence on China. For investors, that also means there can be opportunities in some key stocks in this sector.

USA Rare Earth

Shares of USA Rare Earth (NASDAQ: USAR) have been explosive.

Fueling upside, the company just got a buy rating from analysts at Benchmark, with a price target of $15. Benchmark noted that USAR’s plans to construct a 1,600-metric-ton-per-annum oxide processing facility in Lacq, scheduled for commissioning in late 2026, will help strengthen Europe’s rare-earth supply chain.

“The French government will provide substantial subsidies for the project, covering 45% of eligible equipment costs and €130 million for real estate expenses,” added Investing.com.

Helping, USAR also has more than $3 billion in potential funding, including a potential $1.6 billion from the U.S. Commerce Department to build a domestic rare earth and critical mineral supply chain, CEO Barbara Humpton said in an interview with Bloomberg.

“The defense sector knows that they need to choose different sources of supplies from China,” the CEO told Bloomberg. “The conversations we are having today say that they are willing to make commitments years from now in order to ensure that supply.”

MP Materials

 We also have to consider that MP Materials (NYSE: MP) has become a powerhouse stock after announcing a deal with the U.S. Department of Defense in July 2025, which would help accelerate the build-out of an end-to-end U.S. rare earth magnet supply chain and reduce foreign dependency.

As noted in a company press release, “Rare earth magnets are one of the most strategically important components in advanced technology systems spanning defense and commercial applications. Yet today, the U.S. relies almost entirely on foreign sources. This strategic partnership builds on MP Materials’ operational foundation to catalyze domestic production, strengthen industrial resilience, and secure critical supply chains for high-growth industries and future dual-use applications.”

VanEck Rare Earth and Strategic Metals ETF

With an expense ratio of 0.58%, the VanEck Rare Earth and Strategic Metals ETF (NYSEARCA: REMX) attempts to replicate the performance of the MVIS Global Rare Earth/Strategic Metals Index, which is intended to track the overall performance of companies involved in producing, refining, and recycling of rare earth and strategic metals and minerals. Some of its 30 holdings include MP Materials, Lynas Rare Earths (OTCMKTS: LYSCF), Albemarle (NYSE: ALB), Pilbara Minerals (OTCMKTS: PILBF), and Ganfeng Lithium (OTCMKTS: GNENF).

Why Rare Earth Stocks Are Gaining Strategic Importance

The growing strain on U.S. rare earth supplies is more than a short-term geopolitical issue—it’s a long-term national security and industrial priority. As defense demand accelerates and clean energy transitions continue, the need for a reliable, domestic supply chain is becoming critical.

That shift is already creating momentum for companies positioned to fill the gap. USA Rare Earth offers early-stage upside tied to funding and infrastructure buildout, while MP Materials provides a more established, government-backed pathway to domestic production. Meanwhile, the VanEck Rare Earth ETF gives investors diversified exposure to the global supply chain.

For investors, the takeaway is clear: rare earth elements are no longer a niche commodity—they are a strategic asset. As the U.S. works to reduce its dependence on China, these stocks could remain in focus for years to come.

At the same time, supply growth is slowing. Lower mine activity and delayed expansion projects are tightening the market. And now, after a period of oversupply, lithium is now shifting back toward a meaningful deficit.

According to Seeking Alpha:

“Industry forecasts continue to point to lithium demand more than doubling by the end of the decade, with 2026 shaping up as a key inflection year where demand growth clearly outpaces new supply.”

 In addition, many analysts now expect the lithium market to transition from surplus to deficit starting in 2026. That being said, investors may want to consider gaining exposure to lithium through select stocks and exchange-traded funds (ETFs).

Albemarle Corporation (ALB)

Albemarle Corp. (NYSE: ALB) remains one of the most important and established names in the sector, making it a cornerstone holding for investors seeking direct exposure to the market. The company has recently attracted renewed attention from Wall Street, with several major banks raising both their price targets and ratings.

This growing optimism reflects expectations for tighter supply conditions and stronger lithium pricing ahead. Deutsche Bank, for example, recently upgraded Albemarle to a Buy rating and set a price target of $185.

Analysts at Baird upgraded ALB to a Buy and raised their price target to $210. As cited by Seeking Alpha, Baird analysts wrote: “We are incrementally positive given the recent increase in lithium prices and our view that demand strength stemming from stationary storage will continue to propel ALB higher.”

Amplify Lithium & Battery Technology ETF (BATT)

For investors looking for diversification on the cheap, there’s the Amplify Lithium & Battery Technology ETF (NYSEARCA: BATT) is worth considering.

With an expense ratio of 0.59%, BATT provides exposure to companies involved across the battery ecosystem, including battery storage, battery metals, materials, and electric vehicles. Its diversified approach reduces single-company risk while maintaining leverage to the broader lithium and battery technology trend.

Some of BATT’s top holdings include Tesla (NASDAQ: TSLA), BYD Co. (OTCMKTS: BYDDY), Panasonic Holdings (OTCMKTS: PCRFY), BHP Group (NYSE: BHP), Albemarle, and Ganfeng Lithium (OTCMKTS: .GNENF).

Global X Lithium & Battery Tech ETF (LIT)

Another popular option is the Global X Lithium & Battery Tech ETF (NYSEARCA: LIT). With an expense ratio of 0.75%, LIT offers exposure to the full lithium value chain — from mining and refining to battery manufacturing and electric vehicle production. The ETF holds 40 stocks: Albemarle, Tesla, Ganfeng Lithium, BYD Co., Lucid Group (NASDAQ: LCID), and Mineral Resources. 

Challenges to the Thesis

A key challenge to the bullish demand thesis is the possibility that demand growth fails to materialize as quickly—or as broadly—as expected. Electric vehicle adoption, while still rising, is showing signs of slowing in some major markets due to higher interest rates, reduced subsidies, and affordability concerns.

At the same time, automakers and battery manufacturers are actively working to reduce lithium intensity through improved battery chemistries and efficiency gains. Alternatives such as sodium-ion batteries, while not yet mainstream, could also cap long-term lithium demand if they gain commercial traction, particularly in stationary storage.

On the supply side, lithium is not geologically scarce, and higher prices could incentivize faster project restarts, new brine extraction technologies, or government-supported supply expansion. If supply responds more quickly than anticipated, the projected deficit could be delayed or avoided altogether.

How to Approach This Supply and Demand Play

As lithium demand accelerates and supply growth struggles to keep pace, the market appears to be approaching a pivotal turning point. With forecasts pointing to a shift from surplus to deficit as early as 2026, pricing pressure could return just as global electrification trends continue to intensify. 

Whether through established producers like Albemarle or diversified ETFs such as BATT and LIT, gaining exposure to lithium today may offer a compelling way to position for a tightening market and the next phase of growth in the global energy transition.