Squadra turns first short position into buy on Nubank, names Mercado Livre among biggest recent investments

Squadra Investimentos said in a letter to clients that it has converted its first short position into a long position on Nubank, while naming Mercado Livre among its largest recent investments.

According to Brazil Journal, the São Paulo-based asset manager oversees 16 billion reais in client assets and highlighted “exceptional competitive advantages and skilled management teams” at both Nubank and Mercado Livre. The two holdings now rank among the firm’s top positions alongside Equatorial and Energisa.

The conversion of a short into a buy at Nubank marks the first time Squadra has made such a shift, the letter notes. The move comes as both stocks faced pressure tied to broader market discussions about the impact of artificial intelligence, including “short-term correlations between MELI and Nubank shares and indices labeled as potential AI losers.”

Squadra said it has focused much of its analysis on identifying direct consequences and new risks that AI may pose to each portfolio holding. In its view, while AI’s potential is vast, implementation remains complex across many use cases and company profiles, making execution quality a key differentiator between winners and losers. The manager described the current period as stimulating yet demanding, requiring close monitoring and opinion formation with a degree of intellectual humility.

The firm warned that heightened uncertainty can lead investors to shorten their time horizons, which may result in de-ratings of certain stock multiples. At the same time, it noted that some effects are already tangible or imminent for specific companies. For Mercado Livre and Nubank, the letter said, “predominantly favorable developments are observed or anticipated, particularly in revenue acceleration.”

Squadra attributed this advantage to both companies having built, over years, “modern technological architectures, data-native cultures, prepared data lakes for predictive modeling, and teams with superior expertise—attributes that are rare in the Latin American competitive landscape.”

The letter cited Nubank’s credit underwriting as a source of competitive strength, with the company reporting gains as its models have enabled a larger loan book. “Nubank’s underwriting performance has outperformed competitors, and its credit book has shown better performance than the market average even amid the current rise in delinquency rates.”

Squadra also highlighted Nubank’s success in Mexico, where, after early challenges, the company has built a retail deposit franchise by targeting profit pools that leave incumbents in a classic innovator’s dilemma. On Nubank’s U.S. expansion, the manager acknowledged widespread skepticism but expressed a contrarian view, arguing that the company is entering the market with a familiar positioning—credit-first, digital, mass-market credit cards—a segment that remains underpenetrated and profitable.

Regarding Mercado Livre, Squadra recalled that the company lowered the minimum order value for free shipping in Brazil from 79 reais to 19 reais in mid-2023, a move the manager estimated pushed the e-commerce EBIT into negative territory. The firm noted that Mercado Livre simultaneously increased investments in other initiatives, further pressuring short-term operating results.

Squadra compared this strategy to one Mercado Livre adopted in 2017, when Amazon was expanding in Latin America and Mercado Livre responded with free shipping thresholds in Brazil, Mexico, and Argentina. The result, in the manager’s view, was a lasting shift in the business’s scale: “Over time, MELI’s profits, initially zeroed out, reappeared while gross merchandise volume continued growing at rates comparable to startup-level companies.”

The asset manager also said it is studying companies whose competitive positions, returns on capital, and growth prospects may be diminished by the continued rise of these platforms. From this analysis, Squadra said, short opportunities have emerged, including in sectors where companies benefit from temporary tailwinds that, in the manager’s assessment, do not alter structural pressures on their businesses.