Oracle's $988 million of executive options need its stock to more than double

The strike prices were set near the top of the chart ^[6]. Oracle closed at $137 on Friday, down 53% over 12 months ^[5]. That puts the stock a year earlier at about $291 ^[1], between Ellison's $280 strike and the $308 strike on the awards Clay Magouyrk and Mike Sicilia received days after their September 2025 promotions ^[4]. From Friday's close, Ellison needs a 104% gain and the co-CEOs need 125% before the options are worth anything ^[2].

The awards were already out of the money at the May 31 year end, in a fiscal year when the stock returned 38% ^[2]. Chief financial officer Hilary Maxson's restricted shares were worth $12.7 million then and $7.7 million at Friday's close ^[10]. If her share count did not change, that implies a year-end price of about $226 ^[3].

Now the cash. Capital spending of $55.7 billion ^[7] was about 83% of the year's $67.4 billion of revenue ^[8][4]. Free cash flow was negative $23.7 billion ^[9]. Taking free cash flow as operating cash less capital spending, the business produced roughly $32 billion of operating cash and spent all of it plus another $24 billion ^[5]. Outside money covered the gap: $43 billion of senior notes during the year ^[9], then $20 billion of stock sold at $141 a share over the summer ^[11]. That sale works out to about 142 million new shares ^[8], priced at 46% of the co-CEOs' strike ^[9].

The demand figures moved the other way. Remaining performance obligations reached $638 billion against $138 billion a year earlier ^[12], about 4.6 times as much ^[7] and roughly nine and a half years of current revenue ^[6]. Cloud infrastructure revenue grew 77% to $18.1 billion ^[8]. According to Fortune, investors have been punishing the stock as the cash went out and the notes came in ^[20]. Bloomberg reported this week that Oracle's decision to invoke force majeure on a New Mexico data center sent the cost of insuring its debt against default to a record ^[13].

The evidence supports half of the claim that the market doubts this spending will pay off soon. Customers signed; the backlog shows that. I think what the share price and the credit market are discounting is the gap between signing and collecting, and the fact that Oracle is paying for that gap with borrowed money and new shares. The counter-thesis is that $291 was the outlier, a peak price the strikes simply recorded. From here there are three paths. The backlog converts to cash, free cash flow turns positive and the options recover. Capital spending keeps outrunning operating cash, and each new stock sale pushes $308 further away. Or rising credit costs slow the build. The view is wrong if remaining performance obligations start to fall, because then the market is pricing demand after all.

The board has not rescued the options. "The Compensation Committee did not take any special actions to compensate executives for potential losses in stock option value," the company wrote ^[15]. The board also called options "strongly performance-based" ^[14], and Oracle attributes the size of the grants to competition for veteran cloud and AI leaders ^[19]. Cash pay went up. Each of the three received a $4.9 million bonus, and Ellison's base salary rose from $1 to $950,000 ^[16]. Maxson's options, struck at $185, are underwater too ^[10]. Oracle's own method, which counts four options as one share, puts the three big awards at $400 million ^[17], against $988 million of grant-date value ^[1], a factor of about 2.5 ^[10]. Safra Catz, Stuart Levey and Douglas Kehring took restricted stock under the new Equity Choice Program ^[18], and restricted shares keep some value at $137, as Maxson's $7.7 million shows ^[10].