Nu Holdings Rises After Record Q1, but Credit Costs Loom

What happened

Nu Holdings reported record Q1'26 results with revenue exceeding $5B and net income of $871M (29% ROE), easing short-term profitability concerns. The stock rose on the news, but the quarter also revealed a sharp increase in credit provisions to $1.79B (+33% QoQ) and a 100bps drop in risk-adjusted NIM to 9.5%, signaling mounting credit pressure. Management framed 2026 as an "inflection year" with planned investments in AI and U.S. expansion, but guided that Q1's 17.6% efficiency ratio is not sustainable, targeting ~20% for the full year. Early-stage delinquencies (15-90 day NPL) rose to 5.0% from 4.1% in Q4'25, making the next two quarters critical for confirming whether this is seasonal or structural. The market's positive reaction reflects confidence in Nu's scaled model, but the debate now centers on whether credit costs and investment spending will compress ROE from current ~25-29% levels.

Implication

Nu's record Q1 confirms strong monetization and operating leverage potential, but the sequential rise in provisions and NIM compression introduce near-term uncertainty. The potential buy thesis hinges on credit normalization by Q3'26; otherwise, risk-adjusted returns may fall below the cost of capital. Investors should watch 15-90 day NPL trends and efficiency ratio evolution, with a re-assessment window of 3-6 months. Position sizing should reflect limited margin of safety at current P/E of ~20x, given that the stock trades on credit outcomes rather than asset backing.

Thesis delta

The core thesis remains unchanged—Nu is a high-ROE compounder facing an investment year—but the Q1 data reinforces that credit costs are the swing factor. The margin of safety is limited, and the bull case requires delinquency normalization and efficiency discipline. No shift in rating; maintain POTENTIAL BUY with conviction level 3/5.