Nu Holdings Ltd.
NU is still growing like a fintech but already earning 33% ROE, and after the post-earnings reset to $14.58, the stock underprices the durability of its margin engine and Mexico-led monetization runway.
NU is being judged too much like a rich bank and not enough like a scaled digital financial platform with real earnings power. At $14.58, the stock sits 23.2% below its 52-week high and just 2.9% below the 200-day average, which means the market has stopped panicking but still has not fully paid for the step-change in profit generation. The latest quarter matters because it was not just another beat. It was the first $1B+ net income quarter, with $1.1B of net income, 33% ROE, and a record 12.4% risk-adjusted NIM. That changes the debate from "can NU monetize?" to "how long can this level of profitability compound?"
The first thing the case depends on is margin durability. Management was unusually direct: "we see it as being in the same region as where we are today. We think that it is sustainable." If that proves right, the current 19.7x trailing P/E is not expensive for a company that grew FY2025 EPS 40.6% and still has major room to deepen share of wallet across a 139M customer base. The second thing is Mexico. The approved banking license, payroll deposit opportunity, insurance expansion, and $12.3 ARPAC at this stage are exactly the kind of evidence needed to support a second earnings engine. Brazil built the model. Mexico can extend it.
The third thing is operating leverage through AI and distribution. NU is not spending billions on branches or physical infrastructure. It is using software, underwriting data, and automation, with AI already handling over 60% of Brazil support conversations. That does not just save cost. It should improve response times, retention, and unit economics as products broaden. If that translates into the guided 20% efficiency ratio even while the company enters new adjacencies, earnings can outgrow revenue for several years.
What keeps conviction at Medium instead of High is simple. Credit still needs monitoring, with 90+ NPL at 6.9%. Expenses spiked 20% q/q in Q2. And the stock still carries a premium to bank peers on both earnings and sales. This is not a no-risk mispricing. It is a quality-growth financial trading below its best operating evidence, and that is enough for a Buy.
Mexico monetizes faster than expected, AI and product depth drive operating leverage, and investors underwrite NU as a durable 30%+ ROE compounder rather than a high-beta regional-bank analogue.
NU sustains $1B+ quarterly earnings, keeps the efficiency ratio near 20%, and the stock tracks the engine's $16.9 target as Mexico and payroll lending continue to scale.
Credit costs re-accelerate, 90+ NPL pushes above recent levels, expense growth stays elevated after the 20% q/q opex jump, and the market compresses NU closer to peer-bank valuation.
Quant call (HOLD) diverges from analyst consensus (Buy: 3 buy / 2 hold / 1 sell) — resolve explicitly.
The big money is not in the buying or the selling, but in the waiting.
Forward earnings power is stronger than the trailing $0.59 EPS suggests, because the company is now generating $1.1B in quarterly net income, sustaining a 12.4% risk-adjusted NIM, and guiding to an efficiency ratio around 20%. On that path, the current 19.7x trailing P/E is better read as a premium for compounding earnings, not as a mature-bank multiple, especially if Mexico begins to contribute more like Brazil did at a similar penetration stage. The moat looks stronger in three to five years if NU keeps pairing low-cost distribution with AI-driven underwriting and service automation, where over 60% of Brazil support conversations are already handled by AI, but U.S. expansion is unlikely to matter soon because management said the credit model build-out will take 12 to 30 months. Regulation is a swing factor, yet the Mexico license approval and payroll-lending infrastructure progress suggest the secular path still favors digital share gain over incumbent banks.
- FY2025 revenue grew 19.5% to $15.9B, while EPS rose 40.6% to $0.59, showing operating leverage despite ongoing expansion
- Q2 2026 produced $1.1B net income, 12.4% risk-adjusted NIM, and 33% ROE, with management saying the FY26 efficiency ratio should average about 20%
- Customer scale reached 139M, activity rate improved to 83.5%, and Mexico monetization is already at $12.3 ARPAC, well ahead of Brazil's $5.6 at the same penetration stage
- Profitability is already elite for a growth financial: FY2025 operating margin was 25.9%, net margin 18.5%, and Q2 2026 ROE hit 33% while the company was still investing in Brazil, Mexico, and Colombia.
- The core lending engine is holding up better than feared. Q2 2026 risk-adjusted NIM hit a record 12.4%, and the CFO said, "we see it as being in the same region as where we are today. We think that it is sustainable."
- Mexico is moving from promise to proof. The banking license is now approved, payroll deposits and insurance can expand, and management disclosed Mexico ARPAC at $12.3 versus Brazil's $5.6 at the same penetration stage.
- AI is tangible, not conceptual. Support agents now handle over 60% of Brazil conversations, which supports the stated FY26 efficiency ratio of about 20% even as the company broadens products and geographies.
- Valuation still demands execution. NU trades at 19.7x P/E versus a 12.7x peer average and 3.65x P/S versus 1.8x peers, leaving less room for a credit stumble.
- Credit quality is not clean enough to ignore. Q2 2026 90+ NPL rose to 6.9%, only modestly better than 7.2% flagged in the 2024 Q3 call, and the business remains exposed to unsecured and payroll lending mix changes.
- Expense discipline weakened in the latest quarter. Operating expenses rose 20% q/q, and Q2 EBITDA margin was 24.5%, down 1,000 bps versus Q1.
- Balance-sheet optics remain aggressive for a premium multiple name: debt/equity is 3.17, debt/EBITDA 10.59, current ratio 0.25, and reported FY2025 free cash flow was -$2.9B in the headline financial snapshot.
| Metric | Value | Context |
|---|---|---|
| Share price | $14.58 | Current price used versus the engine target |
| Quant price target | $16.9 | 15.9% upside, Low confidence, basis: earnings_growth_blend |
| FY2025 revenue | $15.9B | 19.5% YoY growth |
| FY2025 EPS | $0.59 | 40.6% YoY growth |
| FY2025 operating margin | 25.9% | Up from 25.2% in the prior year |
| FY2025 net margin | 18.5% | Healthy profitability for a still-scaling platform |
| Valuation | 19.7x P/E | 3.65x P/S | 5.34x P/B | Above peers, with peer avg 12.7x P/E and 1.8x P/S |
| Q2 2026 profitability | $1.1B net income | 33% ROE | First-ever $1B+ net income quarter |
| Q2 2026 margin indicators | 12.4% risk-adjusted NIM | 24.5% EBITDA margin | NIM record high, EBITDA margin down 1,000 bps q/q |
| Balance sheet | 3.17 debt/equity | 10.59 debt/EBITDA | 0.25 current ratio | $42.0B debt | Leverage metrics look heavy on the surface |
| Cash deployment | $2.9B FCF | $0.5B buybacks | $0 dividends | Deep-dive cash flow view, with no meaningful capex |
| Price setup | -23.2% vs 52-week high | -2.9% vs 200-day average | Not washed out, but not extended either |
The biggest risk is that credit normalization turns against NU while it still trades at 19.7x earnings, because a sustained rise from the current 6.9% 90+ NPL level would pressure both the 12.4% risk-adjusted NIM and the premium multiple.
The next catalyst is Q3 2026 earnings on November 12, 2026, with the key watch items being whether net income stays near the $1B+ run rate, efficiency holds near 20%, and Mexico deposit and product momentum improves after the banking license approval.
Ownership is concentrated in large long-only institutions, with the top 3 at 49.4% and holders including BlackRock, Baillie Gifford, and Capital Research, which usually dampens forced selling but can also slow upside if expectations get crowded. Short interest is only 4.05%, or 146.9M shares, down 5.1%, with just 2.3 days-to-cover, so this is not a squeeze story. Options positioning is supportive, with positive gamma and zero-gamma at $12.83, about 12.06% below spot, which suggests near-term flows are not obviously hostile unless the stock breaks meaningfully lower.
Core market with 86%+ activity rate, mature underwriting data, and rising primary-banking engagement; Croma launched in July to deepen wallet share in the super-core segment.
Banking license approved, earlier-than-expected monetization, and $12.3 ARPAC versus Brazil's $5.6 at the same penetration stage point to a high-value second profit engine.
Still in build mode, but part of the multi-country expansion that management says is being funded while group ROE remains 33%.
Q2 gross revenue reached $5.9B, helped by loan growth, better engagement, and record 12.4% risk-adjusted NIM.
Company-wide ARPAC reached $17, reflecting deeper product penetration beyond basic account acquisition.
Nu posted a first-ever $1B+ net income quarter and reiterated strong margin durability.
Execution has been solid, not flawless. Back in the 2024 Q3 call, management said cost to serve should remain at or below $1 per active customer, and the company has since preserved strong efficiency despite scaling, now guiding FY26 efficiency ratio to about 20% while reaching 139M customers from 109.7M then. Management also said NIM should expand as deposits shifted into credit assets; since then, the reported risk-adjusted NIM moved from 18.4% in that older framework to a record 12.4% in the current risk-adjusted presentation, with Q2 2026 above prior expectations and management explicitly calling it sustainable. On strategic milestones, Mexico did in fact start to move the needle, just as David Vélez said, with banking license approval and ARPAC at $12.3. The miss is consistency: the last eight quarters include 4 beats and 4 misses, and the latest quarter showed a 20% q/q opex spike, so this is a credible management team, but not one that should get a perfection premium.
Today, I'm proud to announce that in the past quarter, for the first time, we generated more than $1 billion in net income.
Looking ahead, we continue to expect the efficiency ratio for the full year to average about 20%.
Yes. And to your question on net interest margin or risk-adjusted net interest margin for the foreseeable future, we see it as being in the same region as where we are today. We think that it is sustainable.
I won't necessarily give you a specific number of growth, but we continue to see the conditions to continue growing and taking share as we use a lot of these levers to do that very effectively.
It will take us some time to build up the same confidence in our credit risk models in the U.S. as we have in Brazil and Mexico and Colombia, where we've been operating for years. The actual data richness and building the experience of foundational testing and having the models in place that are specifically tooled for the U.S. market will take somewhere between 12 and 30 months.
NU's moat is a mix of scale, data, and cost. It has 139M customers, an 83.5% activity rate, and years of underwriting data in Brazil, Mexico, and Colombia that newer entrants do not have. That scale feeds lower servicing cost and better credit selection, and the AI stack is starting to reinforce both, with over 60% of Brazil support conversations handled by AI. The moat is durable in Latin America if NU keeps converting engagement into primary-banking relationships and payroll, though it is less portable to the U.S. where management itself says model confidence will take 12 to 30 months to build.
Capital allocation looks growth-first but not reckless. Deep-dive cash flow shows $2.9B of FCF, $0.5B of buybacks, no dividend, and effectively $0.0B of capex, which fits a software-heavy digital-bank model that can scale without branch spend. That said, investors should read cash generation carefully because the headline financial snapshot showed -$2.9B FCF, so reported cash metrics are noisy and balance-sheet funding remains more important than simple industrial-style FCF analysis.
NU rates a BUY at Medium conviction. The stock is not statistically cheap, but the market still seems to be valuing it too close to a traditional bank despite evidence of durable high-ROE growth, AI-supported cost leverage, and a real second-leg opportunity in Mexico. The current setup works because the shares are off the highs while fundamentals just stepped up. The call would weaken if 90+ NPL rises materially above 6.9%, if efficiency drifts away from the guided 20%, or if Mexico fails to turn license approval into deposit and product momentum. Until then, the better bet is on earnings power moving higher than trailing valuation screens imply.
≣ Full research note tap to expand
Executive Summary
BUY, Medium conviction. Rated BUY, Medium conviction. NU is not cheap on trailing screens at 19.7x P/E and 3.65x sales, but the business is not a normal regional bank: FY2025 revenue grew 19.5%, EPS grew 40.6%, and Q2 2026 delivered the first $1.1B+ quarterly net income with management reiterating an efficiency ratio of about 20%. At 23.2% below the 52-week high and slightly below the 200-day average, the setup is attractive if the market starts valuing NU on forward earnings power rather than peer-bank trailing multiples.
Investment Thesis
NU is being judged too much like a rich bank and not enough like a scaled digital financial platform with real earnings power. At $14.58, the stock sits 23.2% below its 52-week high and just 2.9% below the 200-day average, which means the market has stopped panicking but still has not fully paid for the step-change in profit generation. The latest quarter matters because it was not just another beat. It was the first $1B+ net income quarter, with $1.1B of net income, 33% ROE, and a record 12.4% risk-adjusted NIM. That changes the debate from "can NU monetize?" to "how long can this level of profitability compound?"
The first thing the case depends on is margin durability. Management was unusually direct: "we see it as being in the same region as where we are today. We think that it is sustainable." If that proves right, the current 19.7x trailing P/E is not expensive for a company that grew FY2025 EPS 40.6% and still has major room to deepen share of wallet across a 139M customer base. The second thing is Mexico. The approved banking license, payroll deposit opportunity, insurance expansion, and $12.3 ARPAC at this stage are exactly the kind of evidence needed to support a second earnings engine. Brazil built the model. Mexico can extend it.
The third thing is operating leverage through AI and distribution. NU is not spending billions on branches or physical infrastructure. It is using software, underwriting data, and automation, with AI already handling over 60% of Brazil support conversations. That does not just save cost. It should improve response times, retention, and unit economics as products broaden. If that translates into the guided 20% efficiency ratio even while the company enters new adjacencies, earnings can outgrow revenue for several years.
What keeps conviction at Medium instead of High is simple. Credit still needs monitoring, with 90+ NPL at 6.9%. Expenses spiked 20% q/q in Q2. And the stock still carries a premium to bank peers on both earnings and sales. This is not a no-risk mispricing. It is a quality-growth financial trading below its best operating evidence, and that is enough for a Buy.
Key Metrics
| Metric | Value | Context | |||
|---|---|---|---|---|---|
| Share price | $14.58 | Current price used versus the engine target | |||
| Quant price target | $16.9 | 15.9% upside, Low confidence, basis: earnings_growth_blend | |||
| FY2025 revenue | $15.9B | 19.5% YoY growth | |||
| FY2025 EPS | $0.59 | 40.6% YoY growth | |||
| FY2025 operating margin | 25.9% | Up from 25.2% in the prior year | |||
| FY2025 net margin | 18.5% | Healthy profitability for a still-scaling platform | |||
| Valuation | 19.7x P/E | 3.65x P/S | 5.34x P/B | Above peers, with peer avg 12.7x P/E and 1.8x P/S | |
| Q2 2026 profitability | $1.1B net income | 33% ROE | First-ever $1B+ net income quarter | ||
| Q2 2026 margin indicators | 12.4% risk-adjusted NIM | 24.5% EBITDA margin | NIM record high, EBITDA margin down 1,000 bps q/q | ||
| Balance sheet | 3.17 debt/equity | 10.59 debt/EBITDA | 0.25 current ratio | $42.0B debt | Leverage metrics look heavy on the surface |
| Cash deployment | $2.9B FCF | $0.5B buybacks | $0 dividends | Deep-dive cash flow view, with no meaningful capex | |
| Price setup | -23.2% vs 52-week high | -2.9% vs 200-day average | Not washed out, but not extended either |
Financial Strength
The underlying earnings engine looks stronger than the balance-sheet optics. A 33% ROE business with FY2025 operating margin of 25.9% and a Q2 risk-adjusted NIM of 12.4% is clearly generating real economic value. The concern is that funding and leverage metrics are not clean by conventional bank screens, with 3.17 debt/equity, 10.59 debt/EBITDA, and a 0.25 current ratio, while reported free cash flow is inconsistent across data sources. That inconsistency lowers conviction, but the more important read is that margins have held while the company keeps investing in Mexico and Colombia. As long as credit costs stay contained, the business has enough internal earnings power to support growth and selective buybacks.
Competitive Position
NU's moat is a mix of scale, data, and cost. It has 139M customers, an 83.5% activity rate, and years of underwriting data in Brazil, Mexico, and Colombia that newer entrants do not have. That scale feeds lower servicing cost and better credit selection, and the AI stack is starting to reinforce both, with over 60% of Brazil support conversations handled by AI. The moat is durable in Latin America if NU keeps converting engagement into primary-banking relationships and payroll, though it is less portable to the U.S. where management itself says model confidence will take 12 to 30 months to build.
Management & Guidance
Management's current guidance is focused and measurable. The CFO said, "Looking ahead, we continue to expect the efficiency ratio for the full year to average about 20%." He also said risk-adjusted NIM should remain around current levels for the foreseeable future, which is a strong claim after a quarter with record 12.4% risk-adjusted NIM. Credibility is decent because the company just posted its first $1B+ net income quarter and has generally delivered on the broader arc of monetization and Mexico progress, but not perfect because the earnings record shows 4 beats and 4 misses across the last eight quarters and Q2 expenses jumped 20% q/q. The guidance should be treated as achievable, but not bankable enough for High conviction.
Segment Analysis
- Brazil (Majority of revenue and profit): Core market with 86%+ activity rate, mature underwriting data, and rising primary-banking engagement; Croma launched in July to deepen wallet share in the super-core segment.
- Mexico (Smaller than Brazil, growing quickly): Banking license approved, earlier-than-expected monetization, and $12.3 ARPAC versus Brazil's $5.6 at the same penetration stage point to a high-value second profit engine.
- Colombia (Early-stage contributor): Still in build mode, but part of the multi-country expansion that management says is being funded while group ROE remains 33%.
- Lending and interest income (Primary earnings driver): Q2 gross revenue reached $5.9B, helped by loan growth, better engagement, and record 12.4% risk-adjusted NIM.
- Fees and interchange / ARPAC monetization (Meaningful and rising): Company-wide ARPAC reached $17, reflecting deeper product penetration beyond basic account acquisition.
Capital Allocation
Capital allocation looks growth-first but not reckless. Deep-dive cash flow shows $2.9B of FCF, $0.5B of buybacks, no dividend, and effectively $0.0B of capex, which fits a software-heavy digital-bank model that can scale without branch spend. That said, investors should read cash generation carefully because the headline financial snapshot showed -$2.9B FCF, so reported cash metrics are noisy and balance-sheet funding remains more important than simple industrial-style FCF analysis.
Management Execution & Track Record
Execution has been solid, not flawless. Back in the 2024 Q3 call, management said cost to serve should remain at or below $1 per active customer, and the company has since preserved strong efficiency despite scaling, now guiding FY26 efficiency ratio to about 20% while reaching 139M customers from 109.7M then. Management also said NIM should expand as deposits shifted into credit assets; since then, the reported risk-adjusted NIM moved from 18.4% in that older framework to a record 12.4% in the current risk-adjusted presentation, with Q2 2026 above prior expectations and management explicitly calling it sustainable. On strategic milestones, Mexico did in fact start to move the needle, just as David Vélez said, with banking license approval and ARPAC at $12.3. The miss is consistency: the last eight quarters include 4 beats and 4 misses, and the latest quarter showed a 20% q/q opex spike, so this is a credible management team, but not one that should get a perfection premium.
Positioning & Flows
Ownership is concentrated in large long-only institutions, with the top 3 at 49.4% and holders including BlackRock, Baillie Gifford, and Capital Research, which usually dampens forced selling but can also slow upside if expectations get crowded. Short interest is only 4.05%, or 146.9M shares, down 5.1%, with just 2.3 days-to-cover, so this is not a squeeze story. Options positioning is supportive, with positive gamma and zero-gamma at $12.83, about 12.06% below spot, which suggests near-term flows are not obviously hostile unless the stock breaks meaningfully lower.
Bull Case
- Profitability is already elite for a growth financial: FY2025 operating margin was 25.9%, net margin 18.5%, and Q2 2026 ROE hit 33% while the company was still investing in Brazil, Mexico, and Colombia.
- The core lending engine is holding up better than feared. Q2 2026 risk-adjusted NIM hit a record 12.4%, and the CFO said, "we see it as being in the same region as where we are today. We think that it is sustainable."
- Mexico is moving from promise to proof. The banking license is now approved, payroll deposits and insurance can expand, and management disclosed Mexico ARPAC at $12.3 versus Brazil's $5.6 at the same penetration stage.
- AI is tangible, not conceptual. Support agents now handle over 60% of Brazil conversations, which supports the stated FY26 efficiency ratio of about 20% even as the company broadens products and geographies.
Bear Case
- Valuation still demands execution. NU trades at 19.7x P/E versus a 12.7x peer average and 3.65x P/S versus 1.8x peers, leaving less room for a credit stumble.
- Credit quality is not clean enough to ignore. Q2 2026 90+ NPL rose to 6.9%, only modestly better than 7.2% flagged in the 2024 Q3 call, and the business remains exposed to unsecured and payroll lending mix changes.
- Expense discipline weakened in the latest quarter. Operating expenses rose 20% q/q, and Q2 EBITDA margin was 24.5%, down 1,000 bps versus Q1.
- Balance-sheet optics remain aggressive for a premium multiple name: debt/equity is 3.17, debt/EBITDA 10.59, current ratio 0.25, and reported FY2025 free cash flow was -$2.9B in the headline financial snapshot.
Valuation & Price Target
Engine price target $16.9 (+15.9% vs current), Low confidence.
- P/E Multiple: $13.34 (28% weight)
- PEG (growth-adjusted): $28.19 (20% weight)
- P/S Multiple: $7.79 (20% weight)
- Quality-adjusted: $15.98 (20% weight)
- DCF: $65.06 (2% weight)
The quant baseline says HOLD with Low conviction and a $16.9 target, mainly because valuation methods are scattered, from $7.79 on P/S and $13.34 on P/E to $28.19 on PEG and $65.06 on DCF. The rating diverges to BUY because the trailing screens understate where earnings are headed: Q2 2026 already crossed $1.1B net income, ROE is 33%, and management reiterated both margin durability and a roughly 20% efficiency ratio. That is not the profile of a bank that deserves only the peer average 12.7x P/E. The low-confidence target is useful as a base case, but the stock at $14.58, down 23.2% from the high, offers enough upside to buy if one believes the current earnings run rate is durable. Sell-side consensus leans Buy, but that is low-signal context, not the reason for the call.
Risk Assessment
Risk score 39/100 (Low). The biggest risk is that credit normalization turns against NU while it still trades at 19.7x earnings, because a sustained rise from the current 6.9% 90+ NPL level would pressure both the 12.4% risk-adjusted NIM and the premium multiple.
The Bottom Line
NU rates a BUY at Medium conviction. The stock is not statistically cheap, but the market still seems to be valuing it too close to a traditional bank despite evidence of durable high-ROE growth, AI-supported cost leverage, and a real second-leg opportunity in Mexico. The current setup works because the shares are off the highs while fundamentals just stepped up. The call would weaken if 90+ NPL rises materially above 6.9%, if efficiency drifts away from the guided 20%, or if Mexico fails to turn license approval into deposit and product momentum. Until then, the better bet is on earnings power moving higher than trailing valuation screens imply.
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