MP Materials stock may be 26% overvalued after soaring in the wake of Pentagon ownership and a $500 million Apple contract. Here’s why.

Shares of Las Vegas, Nevada-based MP Materials — which mines rare earth in its Mojave Desert Mountain Pass facility and turns the ore into magnets in a Fort Worth, Texas plant — have risen 255% in 2025, according to Google Finance.

Should you buy MP Materials stock — nearly 26% of which is sold short, according to the Wall Street Journal?

Despite much bullish news — including the Pentagon’s plan to invest $400 million to take a majority stake in the company, noted Forbes, and Apple’s $500 million magnet supply and recycling contract with the company, according to Forbes — the bear case is compelling.

How so? Since MP Materials was bought out of bankruptcy by a hedge fund operator, the money-losing company faces two fundamental challenges:

What’s more, the company is very dependent on a single customer, Shenghe, and the stock trades well-above Wall Street’s average stock price.

The company is optimistic about the opportunities ahead. "MP Materials delivered strong execution across both our Materials and Magnetics divisions in the first quarter, marked by record NdPr oxide production and the initial sales of magnetic precursor materials," Founder, Chairman, and CEO of MP Materials James Litinsky, said in a May company release.

"Given recent events, it is now undeniable that the United States must reshore critical industries like rare earth magnetics — something we have been building toward since day one. With rapidly intensifying engagement from both industry and government, MP Materials is leading this effort — underscoring our growing strategic and economic importance at a pivotal moment for American industrial policy." he concluded.

MP Materials — acquired out of bankruptcy a decade ago by two long-time friends one of whom sold his hedge fund when he was 28, noted the Journal — has since made considerable progress.

After being driven into bankruptcy as a result of price competition from Chinese rare earth producers, the former Molycorp struck a financing deal with China’s Shenghe Resources — which sold MP’s ore to Chinese buyers. In the first quarter, Shenghe accounted for 60% of MP’s revenues —down from 80% at the end of 2024, noted the Washington Post.

MP — whose revenue increased 25% in the first quarter to $61 million while losing $23 million, according to the company — developed key skills. After hiring an industry executive, the company figured out how to extract the valuable ore from the chaff.

What’s more, MP built and operates a plant in Texas that turns the ore into magnets used to power “everything from cars and smartphones to missile systems,” noted the Journal. Fielding a dedicated team, MP figured out what China had already mastered — a manufacturing process called grain boundary diffusion — which enabled MP to lower the cost of producing the magnets, according to the Journal.

Due to recent deals, MP’s stock has been soaring. Last week, the Defense Department announced its intent to invest hundreds of millions of dollars in MP — becoming its largest shareholder — to boost magnet production 10-fold to 10,000 metric tons, the Journal reported.

Moreover, the Defense Department deal set a price floor for MP’s rare-earth minerals and guaranteed the purchase of MP’s magnets — while leaving excess production for MP to sell to automakers or tech companies, the Journal wrote.

On July 15, MP announced more good news. Apple said it would buy $500 million worth of rare-earth magnets made from recycled materials — with shipments expected to begin in 2027. General Motors contracted to start taking deliveries later this year, noted the Journal.

Sadly, MP faces enormous challenges as well. Chinese producers are expected to boost production to lower the price of rare-earth magnets. China also has huge competitive advantages in processing chemicals and trained people for making the magnets.

MP’s production costs are likely to be 50% higher than China’s. Moreover, due to China’s export restrictions of rare-earth magnets, one U.S. “auto supplier paid more than $15 a piece for tiny magnets that usually sell for less than 40 cents,” according to a trader the Journal interviewed.

In 2022, China increased production of rare earths so much that prices fell to 20% of their previous price. A similar move prompted Jefferies to downgraded MP Materials to Hold last week.

That’s because China issued short-term export licenses for rare earth magnets — making it less likely rare earth prices will rise sharply. “Even on generous assumptions — a fly-up scenario, rapid expansion, elevated ROICs longer-term, and a lower equity risk premium — we view the risk/reward as neutral, at best,” the analysts wrote, according to Investing.com.

As MP attempts to scale production 10-fold, the company lacks the competitive advantages China enjoys. China has many of the world’s best mines; cheap processing chemicals; a large work force trained to handle toxic rare-earth waste; and policies to restrict China’s rare earth scientists from sharing their knowledge, the Journal reported.

Despite these challenges, if MP can scale downstream magnet production, the company’s earnings could soar. The good news? “mid-cycle earnings could scale to $650 million, and potentially $1.5 billion under a more ambitious build-out,” Jefferies estimated.

However, the $4 billion in capital required and the risks of not achieving returns priced into MP’s stock make the stock overvalued. The current valuation implies the market is pricing in returns of 25% to 30% “on future magnet investments and applying a lower discount rate to MP’s projected cash flows,” noted Investing.com.

MP stock could be significantly overvalued. With eight Wall Street analysts giving the stock a Strong Buy rating and a price target of $43.17, the shares could be 26% too high, according to TipRanks.