Nu Holdings Ltd. shares traded nearly flat Monday afternoon, lingering near recent lows after the Brazilian digital bank's first-quarter results failed to reassure investors. The stock was last seen at $12.18, down 0.1%, within a range of $12.10 to $12.42 on volume of approximately 38.7 million shares.
The muted reaction followed a 5.72% decline on Friday, leaving the stock roughly 10% below its May 11 closing price. The selloff comes despite Nu posting record quarterly revenue of $5.3 billion and net income of $871 million, though the bottom line missed analyst estimates of $980 million.
Credit Quality Concerns Dominate
Investors zeroed in on the company's rising loan-loss provisions and a deterioration in early-stage delinquencies. Nu's 15-to-90-day non-performing loan (NPL) ratio increased to 5.0% from 4.1% in the previous quarter, signaling more borrowers falling behind early in their repayment cycle. However, later-stage delinquencies beyond 90 days improved slightly to 6.5%.
CFO Guilherme Lago attributed the profit miss to faster credit expansion, which necessitated building up provisions for potential bad loans. He pushed back against bearish interpretations, stating the bank is not seeing any signs of asset quality degradation.
Strong Underlying Metrics
Despite the credit concerns, Nu's operational highlights were robust. Revenue exceeded $5 billion for the first time, beating the consensus estimate of $4.5 billion. Return on equity reached 29%, and the company's customer base surpassed 135 million. Founder and CEO David Vélez highlighted the company's use of artificial intelligence in lending and service, describing it as rebuilding banking around AI.
Nu's total credit portfolio grew 40% year-over-year to $37.2 billion, reflecting aggressive expansion. The company also reported that its Mexican operations achieved break-even for the first time, with Lago noting that Mexico is beating Brazil in terms of growth, engagement, and profitability. Nu now counts over 15 million customers in Mexico, making it the country's third-largest financial institution.
Market Context and Sector Performance
The broader market faced headwinds Monday as Treasury yields and oil prices rose, weighing on equities. The Nasdaq underperformed. Adam Turnquist, chief technical strategist at LPL Financial, noted that investors are closely watching interest rates and oil as they digest a more complex macroeconomic backdrop.
Brazilian financial stocks showed mixed performance, with Itaú Unibanco and Banco Bradesco ADRs each rising 0.5% and 0.7%, respectively. PagSeguro bounced 3.4%. This divergence suggests Nu's decline is driven more by company-specific earnings and credit concerns than by broader country risk.
Risks and Outlook
The downside risks for Nu are clear: if Brazilian consumer credit deteriorates further, provisions could increase, and risk-adjusted net interest margins may not recover, potentially turning loan growth into a drag on earnings rather than a boost. Additionally, execution risks from U.S. expansion and AI infrastructure spending loom. Nu has indicated that its initial U.S. spending will remain below one percentage point of its consolidated efficiency ratio through 2026 and 2027.
Investors are now left to decide whether to trust management's view that the credit uptick is seasonal and temporary, or whether it signals a more prolonged deterioration. The stock's tepid response to record revenue suggests the market is taking a wait-and-see approach.
