Nu's 28% Slide Masks Strong Fundamentals, But Credit Risks Loom

What happened

Nu Holdings' stock has fallen 28% over the past six months as investors fret over rising credit provisions and investment spending, despite the company posting record Q1 revenue above $5B and 29% ROE. The market is discounting near-term noise around credit costs—provisions jumped 33% QoQ to $1.79B and risk-adjusted NIM slipped 100bps to 9.5%—while management guides for normalization and sustained ~20% efficiency in FY26. Customer growth continues, with total customers exceeding 135M and ARPAC rising to ~$16, while Mexico reached break-even in Q1’26, validating the multi-country playbook. However, early-stage delinquencies (15-90 day NPL at 5.0% vs 4.1% Q4’25) and rising Stage 2 coverage (39.3% from 32.4% year-over-year) signal credit layering that could offset monetization gains if not reversed. The fundamental thesis hinges on whether credit costs stabilize by Q3’26 and efficiency holds, making the stock a potential buy near $11 with a trim above $16, but position sizing must account for credit cycle sensitivity.

Implication

The 28% slide reflects a market repricing of execution risk, especially around credit and investment spend, not a broken business. At ~12x earnings with 29% ROE, the stock offers a compelling risk/reward if the credit cycle normalizes. But the bear case is real: if 15-90 NPL stays above 5% and risk-adjusted NIM remains below 10%, ROE could compress to ~19%, justifying a $9 valuation. Until then, the re-rating catalyst is absent. The optimal entry is around $11 with a 3-6 month re-assessment window, focusing on Q2'26 provisions and delinquency trends.

Thesis delta

The market's negative reaction to Q1'26 credit deterioration shifts the near-term thesis from 'high-ROE compounder' to 'credit cycle test.' The investment case now depends on confirming that the Q1 provision spike is seasonal and not structural. If delinquencies recede by Q3, Nu's platform strength should reassert, but failure to do so would break the thesis and require exit near $9.