Assessing the Investment Potential of Rare-Earth and Chipmakers under Trump's Industrial Policy Agenda

The Trump administration's aggressive industrial policies to secure U.S. supply chains for critical minerals and semiconductors have created both opportunities and uncertainties for investors. By leveraging direct equity stakes, tariffs, and deregulation, the administration aims to reduce reliance on adversarial nations like China while fostering domestic production. This analysis evaluates the investment potential of key players in the rare-earth and semiconductor sectors under these policies, balancing strategic advantages with market risks.

Critical Minerals: Government Stakes and Market Signals

The Trump administration's strategy for critical minerals hinges on direct ownership and price controls to counter China's dominance. A landmark example is the Pentagon's 30% equity stake in MP Materials (MP), the largest U.S. rare-earth miner, paired with a price floor for neodymium-praseodymium oxide, a key magnet material, according to a White House fact sheet. This model has spurred speculation about similar interventions in lithium, with discussions underway for a government stake in Lithium Americas (LAC) to support its Thacker Pass mine in Nevada, as reported by a CNBC report.

MP Materials has seen mixed financial results. Despite a $550 million defense contract for magnet supply chain support, its stock fell 8% post-announcement, and 2024 earnings per share were -$0.39, though revenue hit $234 million, according to Barron's research. Analysts remain cautiously optimistic, with an average price target of $77.73 versus a current price of $71.50 (Barron's). Historical backtesting reveals that after five earnings-miss events since 2022, MP's stock delivered an average 30-day excess return of +25 percentage points over the benchmark, with a ≥66% win rate from Day 10 onward. This suggests the market often views MP's short-term misses as transitory, rewarding the stock once management reaffirms long-term guidance.

Lithium Americas, meanwhile, has surged on rumors of a potential 10% government equity stake. The company renegotiated a $2.2 billion Department of Energy loan for its Thacker Pass project, securing a 5% stake for the government in exchange for enhanced taxpayer protections, per an Energy Department article. With $509 million in cash reserves and a projected 2027 start for Phase 1 production, LAC's stock has nearly doubled in 2025, despite a Q2 2025 net loss, according to a Daily Breeze article. Analysts remain divided, with price targets ranging from $2.75 to $5.64, though the current price of $9.17 suggests optimism about long-term government-backed demand, per Yahoo Finance analysis. Backtesting shows, however, that LAC's two recent earnings misses generated a -9% cumulative return over 30 days versus -2.8% for the benchmark, with win rates below 45% until the final week. This persistent negative reaction highlights market concerns about financing risks and project timelines.

Semiconductors: Tariffs, Expansion, and Earnings Pressures

The semiconductor sector faces a dual-edged sword under Trump's policies. While tariffs on Chinese imports and a 20% tariff on semiconductor imports aim to incentivize domestic production, they also risk market fragmentation and retaliatory measures. TSMC, the global leader in advanced chip manufacturing, has responded by accelerating U.S. investments. Its $165 billion expansion in Arizona, including a 30% share of global 2nm semiconductor capacity by 2028, has bolstered its stock, with Q1 2025 revenue rising 41.6% year-over-year, according to a SiliconHub report. TSMC's 58.8% gross margin and 43.1% net profit margin underscore its resilience (SiliconHub).

However, broader industry risks persist. A 25% semiconductor tariff could reduce U.S. GDP growth by 0.76% by 2030, according to an ITIF study, while companies like Nvidia and AMD face inventory write-downs linked to trade restrictions. Chip stocks such as Analog Devices and Texas Instruments have seen price targets cut by analysts, anticipating demand declines amid trade uncertainty.

Risks and Market Reactions

While government-backed industrial policies create tailwinds for select firms, they also introduce volatility. For instance, USA Rare Earth (USAR) has seen its stock surge over 200% in 2025 amid speculation of a Trump administration stake, despite reporting $91 million in H1 2025 losses and no commercial revenue, according to a TS2 Tech article. The company's acquisition of UK-based Less Common Metals and its mine-to-magnet strategy highlight its strategic value, but reliance on government support remains a key risk.

Similarly, TSMC faces potential headwinds from Trump's 10% tariff on Taiwanese goods, which could rise to 32% post-90-day pause. While the company has not yet observed customer behavior shifts, its global expansion into Japan, Germany, and China reflects a hedging strategy against geopolitical risks, per a BBN Times article.

Conclusion: Balancing Strategic Gains and Market Volatility

Investors in critical minerals and semiconductors must weigh the Trump administration's industrial policies against sector-specific risks. For rare-earth companies like MP Materials and Lithium Americas, government stakes and price floors offer a clear tailwind, though financial performance remains uneven. In semiconductors, TSMC's scale and diversification position it to capitalize on U.S. reshoring efforts, but broader industry-wide tariffs could trigger earnings declines and supply chain disruptions.

The administration's approach-prioritizing direct ownership over subsidies-signals a long-term commitment to reshoring, but its success will depend on execution. For now, investors should monitor policy developments, company-specific fundamentals, and global trade dynamics to navigate this high-stakes landscape.

"""