Nu Holdings Limited

Analyst thesis

Our recommendation is based on:

• NU’s first-mover fintech advantage in structurally underpenetrated Latin American markets, where financial inclusion remains low, with only ~50%–60% of Mexican adults holding a formal account.

• The artificial intelligence (AI)-driven nuFormer model provides a structural underwriting advantage, enhancing risk selection and pricing accuracy to support lower credit losses and superior risk-adjusted returns as the loan book scales.

• Digital-only, branch-free model creates a structural cost advantage, driving very low customer acquisition costs, sub-$1 monthly cost-to-serve per active customer, and a 19.9% efficiency ratio compared to ~40% for Brazilian incumbents, ~60% for US megabanks, and materially higher levels across global neobank peers.

• The Selic rate peaked around 15%, its highest level in recent years, and the easing cycle is expected to begin gradually, with markets anticipating cuts toward ~11.75% by end-2026, subject to inflation and fiscal dynamics.

• Mexico drives the next phase of growth, with both structural runway and near-term catalysts supporting earnings acceleration.

• Cross-selling should become a core earnings driver, with NU leveraging its scaled customer base to deepen penetration across credit, insurance, investments, and merchant solutions, driving ARPAC expansion and higher Non-Interest Revenue (NIR) contribution.

• US expansion is a key optionality lever for Nu Holdings, with operations likely to begin from ~2027 post-charter approval, where even modest share gains in a large profit pool could materially boost growth and valuation.

• The valuation incorporates a higher bear case probability, reflecting elevated concerns around credit risk at NU Bank, particularly given its exposure to unsecured lending and the potential for weaker asset quality through Brazil’s consumer credit cycle.