Sirmium Capital Adds to dLocal Stake on Valuation

Sirmium Capital increased its position in dLocal Limited (NASDAQ: DLO) during the third quarter of 2026, citing an attractive gap between the company's growth prospects and its current valuation. The firm released this update in its Q3 2026 investor letter, which also outlined a broader strategy focused on undervalued businesses amid concentrated market conditions.

In the letter, Sirmium described dLocal as a "toll bridge" connecting global merchants with consumers in emerging markets, where fragmented banking systems and local payment methods complicate transactions. The firm noted that while cross-border commerce expands, the infrastructure supporting these payments becomes increasingly valuable. Sirmium acknowledged the market's primary concern regarding margin compression as larger customers negotiate lower fees but argued that the current valuation more than compensates for this risk.

The investment thesis relies on specific financial metrics. Sirmium stated that dLocal's earnings are expected to grow approximately 15%, with shares trading at roughly 10 times forward earnings. The firm said it took advantage of recent weakness in the stock to increase its position. As of October 13, 2026, dLocal shares closed at approximately $15.02 per share, giving the company a market capitalization of about $4.31 billion. Over the preceding month, dLocal posted a return of 2.80%, with shares trading between $10.64 and $16.78 over the last 52 weeks.

Sirmium's Q3 2026 results showed an average client return of -2.42%, compared with a 2.38% gain for the S&P 500. The firm attributed this underperformance to a highly concentrated, AI-driven market where a narrow group of technology stocks supported headline indexes while many other businesses remained below previous highs. Sirmium highlighted that the ten largest S&P 500 constituents represented approximately 40% of the index. The firm warned that rising AI infrastructure spending raised financing risks, noting that annual spending by four major cloud infrastructure builders rose by three-quarters, while operating cash flow grew by only one-third. Additionally, the three largest hyperscalers added roughly $207 billion in combined long-term debt.

Despite these concerns, Sirmium believes AI demand remains genuine but cautions that aggressive borrowing could expose lenders and highly leveraged businesses to losses. The firm looks for opportunities in durable businesses where market concentration creates mispricing. During Q3, Sirmium increased several existing positions and initiated small positions in two additional businesses. Data from Insider Monkey indicates that 23 hedge fund portfolios held dLocal at the end of the second quarter, down from 26 in the previous quarter.