What Makes Nu Holdings Ltd. (NU) an Investment Bet?

Baron Funds, an investment management company, released its “Baron Global Advantage Fund” investor letter for the second quarter of 2025. A copy of the letter can be downloaded here. In the second quarter, the fund returned 22.7% (Institutional Shares), compared to the MSCI ACWI Index’s (the Index) 11.5% gain and the MSCI ACWI Growth Index’s 17.3% gain. The Fund is up 11.2%, year-to-date, compared to gains of 10.1% and 9.3% for the benchmarks, respectively. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its second-quarter 2025 investor letter, Baron Global Advantage Fund highlighted stocks such as Nu Holdings Ltd. (NYSE:NU). Headquartered in São Paulo, Brazil, Nu Holdings Ltd. (NYSE:NU) is a digital banking platform. The one-month return of Nu Holdings Ltd. (NYSE:NU) was -11.48%, and its shares gained 8.77% of their value over the last 52 weeks. On August 4, 2025, Nu Holdings Ltd. (NYSE:NU) stock closed at $12.03 per share, with a market capitalization of $58.038 billion.

Baron Global Advantage Fund stated the following regarding Nu Holdings Ltd. (NYSE:NU) in its second quarter 2025 investor letter:

"During the quarter, we initiated a position in Nu Holdings Ltd. (NYSE:NU), a leading Latin American digital bank operating in Brazil, Mexico, and Colombia. Founded in 2014 to provide Brazilian consumers with better access to financial products, Nu is disrupting a banking system long dominated by an oligopoly of incumbents notorious for high fees, poor service, and limited credit availability. By leveraging a user-friendly, tech-first platform and a relentless focus on customer experience, Nu has already attracted over 100 million users with minimal marketing spend. We believe Nu’s success is underpinned by four core advantages: a digital platform that enhances engagement and lowers costs, disciplined credit underwriting, a retail deposit-driven funding base, and a strong, trusted brand. The company continues to scale rapidly, gaining traction in new markets like Mexico and Colombia, and expanding its product suite. In Brazil, Nu already holds a 13% share of the credit card market, and we see similar potential in adjacent markets and products.

We see a long runway for growth given the structural under penetration of financial services in Nu’s core markets. In Brazil, roughly 30% of the adult population remains underbanked, and credit card penetration is only 35%, compared to more than 70% in developed markets. Retail credit penetration (consumer loans as a percentage of GDP) remains low at around 30%, versus about 50% to 60% in mature economies. In Mexico and Colombia, the gaps are even wider as over half of the population is unbanked or underbanked, and credit penetration is below 20% of GDP. Cash still accounts for more than 50% of personal consumption expenditures in these markets, highlighting the significant opportunity to digitize payments and expand credit access. We believe Nu is uniquely positioned to capture this opportunity with its scalable platform and durable cost advantages. We also believe that Nu benefits from a structurally lower customer acquisition cost driven by its virality, which fuels organic adoption. This creates a flywheel effect: Nu's low-cost structure enables more competitive pricing than rivals, enhancing customer appeal, driving viral adoption, and reducing the need for significant spending on paid customer acquisition, further strengthening its efficient customer acquisition funnel. Looking ahead, we expect strong balance sheet growth and increasing monetization per user. We also anticipate a rise in return on equity from 28% to 34% over the medium term, driven by operating leverage and an optimized balance sheet. We are confident that this combination of robust growth and improving profitability positions Nu for strong long-term stock performance."

Nu Holdings Ltd. (NYSE:NU) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 80 hedge fund portfolios held Nu Holdings Ltd. (NYSE:NU) at the end of the first quarter, compared to 79 in the previous quarter. While we acknowledge the potential of Nu Holdings Ltd. (NYSE:NU) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Nu Holdings Ltd. (NYSE:NU) and shared the list of best global stocks to buy. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.