Handré Retief, a Portfolio Manager at Novare Holdings

Everyone’s chasing the AI boom, but the real long-term value may lie in the seldom-noticed supply chains underpinning it: rare-earth minerals. Long dominated by China, they’ve become a strategic necessity for governments and big industries alike – and, for investors, a growing opportunity.

Global equities had another strong year in 2025, driven largely by tech. Companies linked to artificial intelligence and data-centre infrastructure pushed major indexes to fresh highs. Flagship AI-driven stock strategies have reportedly gained well over 60% in 2025 alone – adding to an earlier rally and encouraging many to chase growth at any price. I’m not dismissing AI – far from it. But I believe opportunistic investors may be missing a more durable, under-appreciated theme beneath the surface.

While many keep paying up for the big AI names, we at Novare are building exposure elsewhere – across the mines, refiners, processors and component makers that actually feed electrification, renewables, and high-tech manufacturing. That part of the market has already delivered serious gains.

One useful benchmark: the MVIS Global Rare Earth/Strategic Metals Index – which covers more than 90% of the investable universe of large, liquid rare-earth and strategic-metals firms – is up more than 60% over the past 12 months. Its closest proxy on the exchange-traded fund (ETF) side, the VanEck Rare Earth and Strategic Metals ETF, has delivered a roughly similar increase this year. For something well outside headline technology stocks, that’s a performance that deserves attention.

Why rare-earth demand is tightening

On the demand side, the story is gaining real traction. China’s near-monopoly over refining and processing is fraying under export curbs and global re-shoring initiatives to bring production back home. And governments from the US, EU and parts of Asia are scrambling to create alternative supply chains. That scarcity premium is already showing up in listed names.

Rare earths are increasingly more critical in defence hardware, too, from missile-guidance systems, drones and satellites to night-vision gear and radar equipment.

As a result, rare-earth demand is less cyclical than many think. Even if tech faces headwinds, governments’ desire to secure supply chains and build independent capacity doesn’t disappear easily.

Why we aren’t all-in on every AI stock

There’s no denying AI’s power in 2025. I’m not convinced AI is in a bubble – I believe we’re still in the early innings of adoption.

Many AI-related businesses will likely survive and be transformational. But that doesn’t mean every AI valuation is justified today. Some of these companies have soared too fast. That’s normal in cycles. We simply don’t know who the winners and losers will be five or 10 years down the line.

So, if you ask me whether we’re throwing new money at the top AI counters, the answer is no. We’re not walking away from AI, but we’re careful about valuations, and we don’t want to be too concentrated in the biggest names.

Rare earths: not a fad

At Novare, we see rare earths as the engine of the next technology wave. Our exposure spans upstream miners and ore producers, mid-stream refiners and processors – where bottlenecks and profit margins tend to concentrate – and downstream magnet and component makers supplying EV motors, turbines, electronics and defence gear.

The recent surge in values suggests the market is starting to price that in. Early movers may still benefit from tightening supply, rising demand and policy momentum – especially if Western governments continue to fund refinery capacity and onshoring mining and processing operations. In our view, the cycle still has room to run.

What else are we watching?

Our exposure to rare earths sits alongside other strategic global themes: emerging-market value opportunities and quality global equities with solid cash flows. Importantly, we’re not chasing momentum or interest-rate fairy tales — though we’re watching monetary policy closely.

Many expect further rate cuts, particularly in the US, after inflation showed signs of easing in late 2025. That may broadly feed risk assets, but we don’t assume it will. If inflation surprises on the upside, things get complicated. Given that, we treat fixed income and bonds with caution – and reserve judgement on crypto.

In South Africa, however, we remain constructive. Local equities look appealing. The banks, especially, have given strong updates this year. Commodity prices and improved terms of trade have worked in our favour.

Foreign capital – when it returns to emerging markets – normally flows first into bigger, liquid names. With the rand potentially benefiting from a weakening dollar, South Africa could catch that bid through both bonds and equities.

Within this context, we prefer local equities over local bonds. Not because bonds are unattractive – they still offer good yields – but mainly because much of the good news feels priced in already. Banks, for instance, seem to offer more upside than fixed income right now.

We view crypto as another “excess-liquidity” asset – investments that typically rise when liquidity is abundant, and risk appetite is high. If liquidity stays supportive and rates ease, that helps risk assets overall. But we don’t place big bets on crypto or similar segments.

These other themes matter, and they have their place. But the long-term edge we’re backing right now is rare earths – not instead of everything else, but as part of a more diversified portfolio that isn’t just chasing the same stories as everyone else.

The most critical parts of technology aren’t the flashy names, but the minerals that make it all work. While those metals may be hidden, their value certainly isn’t.

ENDS