Shares of rapidly growing Latin American fintech Nu Holdings (NU 3.66%) are down 13% this week as of 2 p.m. ET on Friday after the digital financial services provider reported fourth-quarter earnings on Wednesday. While Nu's 45% revenue growth rocketed past Wall Street's expectations, the market took a cautious stance toward the stock after management announced that 2026 would be a major "inflection" point for the company. While this isn't inherently bad for the company itself, it certainly brings a higher level of risk -- which doesn't always mesh well with stocks in the banking and financial industry.
NYSE: NU
Key Data Points
First, management reiterated that while "Latin America remains its core growth engine," the company was launching full speed ahead into new markets, such as the U.S., where it recently received conditional approval for a bank charter. These expansion plans are good for growth, but they also bring regulatory risk and may weigh on margins while things get up to speed. Furthermore, Nu highlighted that it would be further integrating AI-powered underwriting across its operations. After its NuFormer AI model underwrote credit card risk in Brazil in recent quarters, it will now expand to Mexico and also start underwriting other lending areas in Brazil. This shift could be tremendous for Nu if it works, but it also introduces additional risk as we wait for more information on how well these models perform.
Image source: Getty Images.
Taking a step back from these theoretical fears, it ultimately was a great quarter for the company. In Q4, Nu:
- grew its active customer counts by 15% to 131 million
- raised its average revenue per active customer by 27%
- boosted its deposit base by 29%
- saw net income rise by 50% as its efficiency ratio hit an all-time low
- lowered its 90-day non-performing loans from 6.7% to 6.6%
Trading at 17 times forward earnings and with a return on equity of 30%, Nu's growth is reasonably priced. While I own the fintech, its exposure to emerging markets, AI models, and higher regulatory risk from expanding globally, creates a level of risk investors should not ignore.
