Nubank's Profit Surge: Sustainable Triumph or Teetering on the Edge?

The financial world watched closely as Nubank reported a 37% year-over-year jump in adjusted net profit to $606.5 million in Q1 2025. Yet beneath the headline growth lurk critical questions: Is this a sign of durable dominance, or does it mask vulnerabilities in credit quality and emerging markets? Let’s dissect the data to determine whether NU shares are a buy now—or a wait-and-see gamble.

1. Brazil’s Dominance vs. Colombia’s Underperformance: A Two-Speed Growth Story

Nubank’s success hinges on Brazil, its cash engine. With 104.6 million customers (59% of Brazil’s adult population), it’s now the nation’s third-largest bank by users. Nearly 60% of these customers use Nubank as their primary bank, a testament to its sticky value proposition. Unsecured loans—its highest-margin product—hit a record R$17.3 billion in originations, delivering ROEs “above triple digits.”

But Brazil’s dominance contrasts sharply with its performance in Colombia. Despite nearly 3 million customers and 30% quarterly deposit growth to $1.8 billion, Colombia remains a profit-light market. The lack of detailed credit metrics for Colombia hints at early-stage risks: scaling deposits without profitable product adoption could strain margins.

2. Credit Quality: A Stable Foundation or Cracks Ahead?

Nubank’s credit metrics in Brazil are resilient, but not flawless. The 15-90-day NPL ratio rose 60 bps to 4.7%, slightly below seasonal trends, while the 90+-day NPL ratio dropped 50 bps to 6.5%. Management attributes this to disciplined underwriting and a focus on low-risk borrowers. However, Brazil’s SELIC rate hike (now 13.75%) poses a looming threat: delayed repricing of existing loans could squeeze margins further.

The bigger concern? Margin compression. Net interest margin (NIM) dipped 20 bps to 17.5%, driven by deposit pricing in Mexico and Colombia. The risk-adjusted NIM fell to 8.2%, a stark reminder that growth in unprofitable markets isn’t free.

3. Valuation: Why Itaú Unibanco Overtook Nubank—and What It Means

Nubank’s loss of Latin America’s top market cap title to Itaú Unibanco signals investor skepticism. While Nubank boasts 118.6 million customers, Itaú’s traditional strengths—R$3.05 trillion in assets vs. Nubank’s R$286 billion—and steady cash flows appeal to risk-averse investors. Analysts note that Nubank’s growth is maturing, and its P/S ratio has halved since 2022, reflecting concerns over margin pressures and scaling costs.

Verdict: Buy NU? Or Wait for Margin Clarity?

The Bull Case:
- Brazil’s unsecured loan flywheel is unstoppable, with disciplined risk management.
- Colombia and Mexico’s customer growth (3M and 11M, respectively) will eventually monetize.
- A 24.7% efficiency ratio and $4.3 billion in excess capital position Nubank to weather margin headwinds.

The Bear Case:
- Margin pressures from deposit-heavy markets are structural, not temporary.
- Itaú’s valuation discount reflects skepticism about Nubank’s ability to sustain high growth.
- Credit defaults could spike if Brazil’s economy falters post-SELIC hikes.

Final Stance: Proceed with Caution—Buy on a Pullback

While Nubank’s Q1 results confirm its operational excellence, the risks of margin erosion and underperforming markets are real. Investors should:
1. Wait for NIM stabilization: A rebound in NIM to 18%+ would signal execution confidence.
2. Monitor Colombia’s credit metrics: Profitability there must materialize by 2026.
3. Track valuation multiples: A P/S ratio below 2x may offer better entry points.

For now, NU shares are a hold. The 37% profit growth is impressive, but the path to sustainable margin expansion—and overtaking Itaú’s valuation—remains unproven.

Investment Decision:
- Hold NU until Q3 2025 results confirm margin stability.
- Buy on a 15%+ dip from current levels if fundamentals hold.
- Avoid if NPL ratios spike or international markets underperform.

The verdict? Nubank’s profit surge is a milestone, but the road to becoming Latin America’s true banking titan is still lined with potholes.