Nu Holdings: Expansion Accelerates, but Credit Stress Persists

What happened

Nu Holdings continues to expand its lending operations, particularly as its Mexican subsidiary transitions to a full bank, but the market is increasingly focused on deteriorating credit quality. The latest Zacks commentary highlights rising long-term delinquencies, which align with Q1 2026 data showing NPL 15-90 climbed to 5.0% from 4.1% sequentially. This credit deterioration, combined with a sharp increase in cost of credit to $1.79 billion from $1.04 billion year-over-year, pressured profitability and reduced Brazil's CET1 ratio to 11.3%. Our prior analysis already rated NU a WAIT, arguing that the stock's current price does not adequately compensate for these rising risks, and the new article provides no evidence to change that view. Until credit metrics stabilize and risk-adjusted net interest margin recovers, we continue to view Nu as fairly valued at best, with downside risk if delinquencies keep climbing.

Implication

The current price of $14 already reflects strong growth but does not provide a margin of safety against further credit deterioration or capital consumption. The next two quarterly reports are critical: if Brazil CET1 stays below 11.3% or NPL 15-90 remains above 5.0%, the bear scenario becomes increasingly likely. Conversely, a stabilization in these metrics, alongside a recovery in risk-adjusted NIM above 9.5%, would warrant a re-evaluation of the stock. For now, the risk/reward is unattractive; we recommend waiting for either a pullback to $12 or clear evidence of credit normalization before considering new positions. Existing holders should use any rallies toward $17 to trim exposure, as the current momentum is not supported by fundamentals.

Thesis delta

No change to our WAIT rating; the new information reinforces our existing concerns about credit quality and capital intensity. The expansion narrative remains intact but is increasingly overshadowed by deteriorating asset quality. We maintain that Nu is fairly valued at $14 and see limited upside until credit metrics improve.