USA Rare Earth (USAR) shares surged nearly 7% higher on Jan. 26 after the Trump administration confirmed plans of investing about $1.6 billion in the miner that specializes in rare-earth elements.

The post-announcement rally pushed USAR’s relative strength index (14-day) into the “extremely” overbought territory, signaling potential for a sharp correction in the near term.

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At the time of writing, USA Rare Earth stock is up more than 85% versus the start of this year.

USAR has agreed to sell millions of its shares and warrants to the U.S. government at $17.17 apiece, but the critical minerals stock is currently trading at a sharply higher $26.

This means the market has already priced in future success quite substantially — leaving little to no further upside for late investors.

More importantly, the federal and private investments USA Rare Earth disclosed this morning will prove significantly dilutive for existing shareholders over time, further reducing the incentive of chasing this rally.

According to Barchart, USAR stock has a history of losing more than 7% on average in February, which makes owning it even less attractive in the near-term.

Investors are cautioned against investing in USA Rare Earth shares also because the company remains speculative and pre-revenue.

It faces significant capital and execution challenges inherent to large-scale mining operations that frequently exceed initial cost projections.

USAR is broadly expected to remain “unprofitable” this year, and its negative cash flow projections extend through 2028.

In short, investors entering at current levels are betting on flawless execution not just across mining development but also in construction of processing facility, metal production scaling, and expansion of magnet manufacturing capacity as well.

Wall Street analysts agree that USAR’s share-price rally following the federal investment news has gone a bit too far, especially given that the firm’s recent filings signaled substantial doubt regarding “going concern” status.

While the consensus rating on USA Rare Earth remains at “Strong Buy," the mean target of about $23 indicates potential downside of more than 10% from here.

On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com