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TINY TITANS OF TECH: UBS SAYS RARE EARTHS POWER AI'S GIANT LEAP WITHOUT SUPPLY CRISIS

Rare earth elements (REEs) are the unsung heroes behind the AI hardware revolution, essential for advanced hardware, particularly semi-cap equipment, due to their unique properties in high-performance magnets and specialized components.

But while recent trade tensions have put the spotlight on rare earths, the brokerage sees no risk of catastrophic shortages disrupting the AI value chain.

The note came as rare earths, vital for chip-making and next-generation robotics, have become a flashpoint in U.S.–China trade talks.

According to UBS, China accounts for about 70% of global REE mine production and more than 90% of refining and magnet manufacturing.

Processing and magnet manufacturing remain highly concentrated in China, fueling concerns about bottlenecks.

"Bottleneck risks persist for semiconductors if trade tensions escalate, but we do not see REEs causing catastrophic shortages on the AI value chain," UBS analysts wrote, citing inventory buffers, recycling, and alternative materials as mitigation strategies.

"While we continue to monitor for possible escalations, we do not view REEs as an existential risk for AI semis at the moment," UBS said.

The brokerage noted that companies, including ASML ASML.AS, Western Digital WDC.O, and Microsoft MSFT.O, have increased their inventories and launched recycling programs to mitigate short-term risks.

However, "the U.S. has accelerated its efforts to decrease dependence on China" through investments, new mines and partnerships with Australia and Asian countries, UBS added.

The brokerage said reducing exposure to semi-cap equipment companies such as TSMC 2330.TW, Applied Materials AMAT.O, Samsung Electronics 005930.KS, and SK Hynix 000660.KS is not warranted.

(Akriti Shah)

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