Step inside a hyperscale data center and the first thing you notice is the sound. Thousands of fans humming at once, pushing air across chips that run hot enough to warp metal. Those fans run on motors. Those motors run on magnets. And those magnets are made of neodymium.

Two years ago, data centers barely registered in rare earth demand forecasts. The big stories were EVs and defense contracts. Now there's a third buyer at the table — and this one is spending $400 billion a year.

Sprott Asset Management said last Thursday that AI is now the third big force driving rare earth demand, right behind EVs and defense. Steve Schoffstall, Sprott's managing partner and head of ETFs, laid it out during a webcast on rare earth markets. The five largest hyperscale data center operators — think Google, Amazon, Microsoft — committed roughly $400 billion in capital spending for 2025 alone. A big share of that goes to building and cooling the facilities that run AI workloads.

Cooling eats about 40% of a data center's total electricity bill. The fans, pumps, and motors that move heat out of these buildings use NdFeB permanent magnets. The same magnets that go into EV motors and missile guidance systems. Neodymium and praseodymium, sold together as NdPr, are the core ingredients.

The IEA projects that AI data centers will consume 3% of all magnet rare earths by 2030. That sounds small. It's not. This market was already tight — electrification doubled demand for magnet rare earths over the past decade, and defense spending stacked more on top. Any new buyer changes the math.

Which brings us to the supply problem. China makes about 94% of the world's permanent magnets. The U.S. mines about 13% of global rare earths but still depends on China for roughly 71% of its imports. So every new data center built in Virginia or Texas creates demand for magnets that mostly come from one country.

And most investors haven't connected the dots yet. "AI is probably one that investors don't easily draw the conclusion that there's a lot of rare earths used in that application," Schoffstall said.

That's three pillars of demand now — EVs, defense, AI — all pulling from the same supply chain. The rare earth market used to rise and fall with car sales and wind farm permits. Not anymore. It's tied to the kinds of spending that governments and tech companies don't cut, even in a downturn. The market just got a lot more crowded.

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USA Rare Earth (Nasdaq: USAR) announced that its facility in Wheat Ridge, Colorado has produced commercial-grade dysprosium oxide and NdPr oxide from recycled magnet scrap. The scrap — called swarf — comes from the company's own magnet plant in Stillwater, Oklahoma. That makes USAR one of a handful of companies outside Asia that can separate heavy rare earths. Dysprosium is the element that keeps magnets working at high temperatures, which is exactly what EV motors and data center fans demand. The step moves USAR closer to a closed-loop chain: make the magnet, recycle the waste, feed it back in.

China's Rare Earth Price Index climbed to 273.5 on July 16, according to the China Association of Rare Earth Industry. The index has been rising steadily since late last year. But the headline number hides a split. Heavy rare earths like terbium and dysprosium keep climbing — terbium metal hit $1,278–$1,293/kg — while NdPr oxide softened. The bigger story is what these prices mean outside China. Western buyers can't access the domestic Chinese market directly. The prices they actually pay are higher, less transparent, and harder to hedge.

The IEA's latest analysis projects that average recycling rates across key energy minerals could grow from about 10% of global supply today to nearly 20% by 2040. The finding was part of a broader report on critical minerals and energy transition metals. That sounds like progress. But for rare earths specifically, today's recycling rates sit below 1%. The gap between what recycling could do and what it actually does remains wide. Building that capacity takes time, money, and technology that most countries don't yet have.

Steve Schoffstall, Managing Partner & Head of ETFs, Sprott Asset Management
July 17, 2026

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Most people have heard of neodymium. Fewer know its partner. Praseodymium is the other half of NdPr — the alloy at the heart of every high-performance permanent magnet. You can't make an NdFeB magnet without it. It also shows up in aircraft engine alloys, ceramic glazes, and UV-protective glass. At $245.40 per kilogram, praseodymium is up 70% this year and 237% since 2020, when it traded at $72.77. Every NdFeB magnet is roughly one-third NdPr by weight. The two elements occur together in ore and are refined together. When neodymium moves, praseodymium follows. Right now, both are moving.

REalloys has raised about $150 million through two equity financings this year and holds offtake rights to 80% of output from Saskatchewan Research Council's Saskatoon rare earth facility. SRC targets commissioning by December 2026 and a production ramp in 2027. The open question: whether SRC can scale from pilot to full production, one of the hardest steps in the rare earth supply chain.

— Rare Earth Exchanges

Ucore Rare Metals (TSXV: UCU) produced 99.9% pure dysprosium oxide at its Kingston, Ontario facility and is sending qualification samples to magnet manufacturers in Japan, South Korea, and the United States. The material was separated using Ucore's RapidSX technology from a Western ionic clay source.

— GlobeNewswire

Chinese authorities detained two Japanese citizens in Dalian over alleged rare earth export control violations, Japan's Chief Cabinet Secretary confirmed. The arrests follow Beijing's broader enforcement push, which now includes a public reporting system for violations that went live July 1.

— Nikkei Asia

The IEA's new Rare Earth Elements report estimates that meeting magnet rare earth demand outside China will require about $60 billion in public and private investment over the next decade. The figure covers announced projects that have not yet secured full funding.

— IEA