Lithium Americas Corp. saw its stock surge recently after the federal government took a stake in the company, but J.P. Morgan warns that investors should not get carried away with the the lithium producer's newfound popularity in Washington.

The lithium industry, like those for rare earths and chips, has been deemed vital for national security by the Trump administration. The element is an important component in rechargeable batteries that power electric and hybrid vehicles, as well as a variety of consumer electronics. Fueled by the Trump administration's support, Lithium Americas' stock (LAC) is up 129.5% over the last month.

But J.P. Morgan sees the company's valuation as expensive and downgraded the stock to underweight from neutral Wednesday. "We don't view the deal as being incrementally positive enough to warrant the scale of re-rating the stock has seen," J.P. Morgan analyst Bill Peterson said. Rather, the government's stake can be viewed as a "backstop" for the company in an otherwise lackluster lithium market, he wrote.

J.P. Morgan has a $5 price target for the stock, which ended Thursday's session at $7.39.

Lithium Americas shares tumbled on the downgrade, with the stock falling 21.7% Thursday, registering its biggest daily percentage decline since April 18, 2024, when it fell 29.71%, Dow Jones Market Data show.

Set against the backdrop of intensifying competition with China, the federal government recently also took a stake in rare-earths producer MP Materials Corp. (MP). However, there are big differences between the rare-earth and lithium industries, according to Peterson. "Rare earths have more explicit ties to defense and national security and are far less available outside of China's control, unlike lithium, which can be found in Australia and Latin America," he said.

But the analyst likes Lithium Americas' Thacker Pass mining project, a joint venture with a subsidiary of General Motors Co. $(GM)$, and sees a pathway for it to be profitable once ramped up.

Lithium Americas describes Thacker Pass as the world's largest known measured lithium resource and reserve. Construction of the mine began in 2023, and "mechanical completion" is expected in 2027, Lithium Americas recently told MarketWatch. The company said it is on schedule to be in production in late 2027, and will scale up in 2028 to full production of 40,000 metric tons per year of battery-quality lithium carbonate.

Of 13 analysts surveyed by FactSet, two have a buy rating, seven have a hold rating and four have an underweight or sell rating for Lithium Americas.

Lithium Americas shares have climbed 148.8% in 2025 and MP Materials' stock is up 437.4%, compared with the S&P 500 index's SPX gain of 12.7%.