In the stock market, earnings and earnings growth are paramount, but in business there is something that matters even more.

We're talking about free cash flow. And when investors forget cash is king, they get stung. Just look at what happened with Lucid stock this week.

Shares of the EV start-up fell as low as $2.37, down more than 50%, on Tuesday after news portal electric-vehicles.com said the company was considering a bankruptcy filing, which Lucid strenuously denied.

Shares recovered to $6.56 in midday trading on Friday, up almost 20% for the week. So no harm, no foul. Still, some investors sold on the way down to $2.37.

Lucid stock was susceptible to damage because the company isn't profitable and will need billions in new capital over the coming years to reach that point -- expected when it is selling about 150,000 cars a year. Sales are expected to reach about 21,000 vehicles this year.

While Rivian stock dropped 18% on July 7 after announcing a capital raise, free cash flow is a risk for more than just small EV start-ups.

The AI buildout is the granddaddy of all free-cash-flow fires. Amazon.com, Meta Platforms, Tesla, and SpaceX aren't expected to generate positive free cash flow in 2026, just like Lucid and Rivian.

Alphabet's free cash flow this year is expected to drop to about $20 billion from more than $70 billion in 2025 as capital spending hits about $185 billion, up from $91 billion last year.

To be sure, Magnificent Seven tech stocks are a little different than EV start-ups. If Alphabet, Amazon.com, or even Tesla decided to slow spending, free cash flow would rush back.

That offers some downside protection for large tech stocks, says Bill Nygren, portfolio manager of the Oakmark Select Fund. (Oakmark Select holds Alphabet shares.) Still, the lack of free cash flow and reliance on equity and debt funding markets adds risk, he says.

SpaceX stock is somewhere in the middle, between Lucid and Alphabet. Morgan Stanley analyst Adam Jonas estimates SpaceX will use more than $700 billion over the next nine years building out its communications and AI businesses before free cash flow turns positive in 2035. It needs, at least, an incremental $600 billion over what the company has recently raised.

Still, if SpaceX were to adjust its plans, its Starlink space-based broadband business, with more than 10 million customers, would still grow and generate free cash flow. What valuation Starlink alone could support for SpaceX is another question.

Cash has become the central risk for the market. This is just another way to say that the AI arms race is driving the stock market and that, eventually, all that spending needs to generate free cash flow.

Everyone knows that. At least investors can monitor debt and equity markets for signs of stress. That can help minimize risk and avoid Lucid-like stock volatility. Because when the capital dries up and companies have to rely on their own cash flow, things will get ugly.

Write to Al Root at allen.root@dowjones.com

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(END) Dow Jones Newswires

July 17, 2026 14:05 ET (18:05 GMT)

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