Wall Street never likes uncertainty, and Washington is often a source of consternation for investors. On Tuesday morning, stocks appeared set to open lower as worries arose over whether lawmakers will be able to raise the debt ceiling and avoid a default by the U.S. Treasury. Declines in stock index futures weren't huge, but it appeared that the Nasdaq Composite (^IXIC 1.73%) could open down as much as half a percent.

Adding to the downward pressure on the Nasdaq were earnings reports from a pair of well-known stocks. PayPal (PYPL 1.97%) wasn't able to mount the recovery that shareholders have been waiting to see for months now, while Lucid Group (LCID 5.25%) is still struggling to hit the accelerator and take full advantage of the explosion in interest in electric cars and trucks. Read on to get the details on why PayPal and Lucid are holding back the Nasdaq.

PayPal can't satisfy shareholders

Shares of PayPal dropped 7% early Tuesday. The payment network specialist's stock is approaching levels not seen in more than five years, even though there are some signs that its fundamental business prospects might turn around.

Overall, PayPal tried to paint a positive picture of its first-quarter financial results. Revenue climbed 8.6% year over year to $7.04 billion, which was more than a percentage point above its previous guidance. Adjusted earnings of $1.17 per share were $0.08 above the midpoint of its projected range, and PayPal produced another $1 billion in free cash flow for the period.

Key performance metrics generally looked favorable. PayPal processed 5.8 billion transactions during the quarter, up 13% year over year, and total payment volume grew 10% to $355 billion. That came despite foreign currency impacts that were generally negative for these figures.

Moreover, PayPal is upbeat about the positive impact of its cost-cutting initiatives on earnings for the remainder of 2023. The electronic payments specialist boosted its full-year earnings guidance to about $4.95 per share on an adjusted basis, which would represent 20% growth from 2022 figures. PayPal also expects to spend $4 billion on stock repurchases, putting ample free cash flow to work for shareholders.

Yet some investors had wanted to see even more expansion in PayPal's operating margin. With such a strong emphasis on earnings at this point in the economic cycle, PayPal is having trouble getting shareholders to shift their focus back to longer-term growth opportunities.

Lucid hits the brakes

In the electric vehicle (EV) sector, Lucid Group shares fell nearly 10%. The EV maker released first-quarter financial results that weren't enough to give investors the assurance they needed that Lucid can move forward quickly to claim a long-term competitive position in the industry.

Lucid continued to ramp up its operations. Revenue jumped nearly 160% year over year to $149 million. However, costs of vehicle production alone doubled from year-ago levels, wiping out that extra revenue and causing additional losses that eventually totaled nearly $780 million. That worked out to $0.43 per share. Even Lucid's adjusted pre-tax operating losses widened sharply, and free cash outflows exceeded $1 billion.

Production of 2,314 vehicles during the first quarter was roughly in line with its efforts to build 10,000 EVs during 2023, even though Lucid only delivered 1,406 vehicles. With $4.1 billion in total liquidity, Lucid said it has enough funding to last at least into the second quarter of 2024.

Yet despite having received numerous awards for the quality of its Lucid Air, investors seem increasingly uncertain whether the small EV automaker can be commercially viable. With competitors moving at a breakneck pace, Lucid has to get moving if it wants to reach its full potential.