The Biggest Test for Nu Holdings Isn't Growth -- It's the Credit Cycle

Nu Holdings (NYSE: NU) has already proven it can grow. In 2025, it delivered strong revenue expansion, rising net income, and solid return on equity.

But growth was never the most challenging part.

The real test now is whether Nu Holdings can withstand a credit cycle without cracking.

Image source: Getty Images.

Growth is easy in a favorable environment

Nu Holdings' core profit engine remains consumer lending, particularly unsecured credit in Brazil and, increasingly, in Mexico. When economic conditions are stable, this model scales beautifully.

Loan books expand. Net interest income rises. Delinquencies remain manageable. Returns look impressive.

In 2025, Nu Holdings' loan portfolio surpassed $27 billion and later moved above $30 billion, reflecting strong year-over-year growth. Asset quality metrics remained under control, with delinquency ratios in manageable mid-single-digit ranges.

So far, so good.

But lending performance during expansion tells only part of the story.

The risk in emerging markets

Brazil and Mexico offer enormous opportunities. They also carry volatility.

Inflation spikes, currency swings, policy shifts, or economic slowdowns can pressure household balance sheets. Unsecured consumer credit often absorbs that shock first. If unemployment rises or purchasing power weakens, early delinquency indicators can deteriorate rapidly.

The question investors must ask is simple: Can Nu Holdings maintain underwriting discipline if macro conditions tighten?

High return on equity in good times impresses the market. Sustained return on equity through stress builds institutional credibility.

Nu Holdings' digital model and data-driven underwriting give it an advantage. Its low-cost structure also provides flexibility that branch-heavy banks lack. But the company has not yet navigated a full downturn at its current scale.

That test still lies ahead.

Nu Holdings' stock trades at a premium valuation

Nu Holdings trades more like a growth fintech than a traditional bank. That premium reflects confidence in durable expansion and disciplined execution. For perspective, the stock has a price-to-earnings (P/E) ratio of 31.

If credit performance holds steady, that confidence may prove justified. If asset quality weakens meaningfully, earnings could compress quickly. High-multiple stocks rarely react kindly to sudden earnings volatility.

This is why the credit cycle matters so much. It is not just an operational risk. It is a valuation risk.

What does it mean for investors?

Nu Holdings is transitioning from disruptor to dominant financial platform. As scale increases, expectations rise. Investors no longer need proof that Nu Holdings can add customers. They need evidence that it can defend margins and protect capital during stress.

If Nu Holdings can navigate a more challenging macro environment while preserving asset quality and profitability, it will solidify its position as a resilient regional banking leader -- not just a high-growth fintech success story.

Investors will be keeping a close eye on the next down cycle (which could happen in 2026) to gauge whether the company can do just that.

Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.