RARE (Rare Earth Elements) in 2026: Rise or Fall Amid AI-Driven Growth and Macroeconomic Uncertainty?

The rare earth elements (RARE) sector stands at a pivotal crossroads in 2026, shaped by the dual forces of AI-driven technological innovation and macroeconomic volatility. As artificial intelligence, electric vehicles (EVs), and renewable energy systems redefine global industrial landscapes, demand for RARE is surging. However, the sector's future hinges on its ability to navigate geopolitical bottlenecks, supply chain fragility, and policy-driven shifts. This analysis examines whether RARE will rise or fall in 2026, focusing on strategic positioning in the AI revolution and macroeconomic tailwinds.

AI and the Critical Role of Rare Earth Elements

Artificial intelligence is accelerating demand for RARE, particularly in semiconductors, data centers, and advanced manufacturing. Gallium arsenide semiconductors, essential for high-performance GPUs, and germanium for fiber optics are now indispensable to AI infrastructure. The International Energy Agency (IEA) estimates that data center expansion alone could drive a 3% increase in global RARE demand by 2030. By 2026, the global RARE market is projected to reach $15.2 billion, growing at 8.4% annually, as AI hardware and renewable energy systems become dominant drivers.

China's dominance in RARE processing-controlling 90% of global refining and over 60% of mining- creates acute vulnerabilities. For instance, gallium and germanium, critical for AI chips, are 98% and 60% produced in China, respectively. This concentration has spurred urgent efforts by the U.S., EU, and G7 nations to diversify supply chains. The U.S. National Energy Dominance Council (NEDC) and the EU's Critical Raw Materials Act (CRMA) are prioritizing "mine-to-magnet" supply chains, with direct government funding and public-private partnerships.

Macroeconomic Tailwinds and Strategic Initiatives

The macroeconomic case for RARE is bolstered by its role in $12 trillion of annual global economic activity, spanning EVs, wind turbines, and defense systems. Neodymium and praseodymium, used in permanent magnets for EV motors and wind turbines, are expected to see demand grow significantly as clean energy transitions accelerate. MP Materials, a U.S. leader in RARE production, exemplifies this trend: in 2025 Q4, it tripled neodymium and praseodymium output to 11,478 metric tons, despite a $22.3 million loss, signaling a strategic pivot toward downstream magnet manufacturing.

Geopolitical tensions, however, introduce risks. U.S.-China trade disputes and Beijing's potential regulatory shifts could disrupt supply chains. To mitigate this, the U.S. is considering a $2.5 billion agency to boost domestic RARE production, while Australia and the UK are investing in refining capacity. These initiatives aim to reduce reliance on China, but scaling refining and separation technologies remains a costly, time-intensive challenge.

Investment Opportunities and Risks

For investors, RARE presents a mix of high-reward opportunities and systemic risks. Key players like MP Materials, Lithium Americas, and Albemarle are benefiting from policy-driven incentives. The U.S. Department of Energy's $2.5 billion agency proposal, if enacted, could further catalyze domestic production. However, operational complexities-such as managing hazardous byproducts in gallium and germanium processing- highlight the need for sustainable practices.

Macroeconomic uncertainties, including inflation and interest rate volatility, could dampen capital flows into capital-intensive RARE projects. Yet, the sector's strategic value in national security and energy transitions may insulate it from broader market downturns. Circular economy approaches, such as recycling and resource recovery, offer a complementary path to reduce primary mining reliance, though scaling these systems requires global cooperation and infrastructure investment.

Conclusion: Rise or Fall?

The RARE sector is poised for growth in 2026, driven by AI's insatiable demand for critical minerals and macroeconomic tailwinds from clean energy and defense spending. However, its trajectory will depend on the success of supply chain diversification efforts and the ability to address environmental and geopolitical risks. While China's dominance remains a wildcard, strategic initiatives by the U.S., EU, and allies are creating a more resilient, albeit still fragile, market. For investors, the key lies in balancing exposure to high-growth RARE producers with hedging against supply chain disruptions-a calculus that underscores the sector's strategic importance in the AI-driven economy.