3 growth stocks Ben Clark bought on the dip

Back in February, TMS Capital’s Ben Clark suggested investors “run into the fire, not away from it” and capture some of the opportunity in growth stocks after the market hammered them indiscriminately.

Since then, an already ugly sell-off has been hit with another wave of volatility. President Trump and Israel launched coordinated strikes against Iran, sending oil prices higher and forcing a rapid repricing of inflation and interest rate expectations.

And yet, just as investors braced for a toxic mix of AI disruption and surging oil to break markets, the NASDAQ turned and is now back knocking on all-time highs.

That’s what makes this moment so interesting. The market has gone from euphoria to panic and back again in a matter of months — often with little change in underlying fundamentals.

So where does that leave investors now? We put that question back to Clark.

The disconnect that looks wrong, but isn’t

To understand where we go next, you first need to understand how we got here.

On the surface, the divergence between US and Australian tech looks illogical. The NASDAQ is near record highs, while the S&P/ASX All Technology Index looks left for dead.

Clark says it’s not a disconnect - it’s structural.

“They’ve got Google, Amazon, Meta… we don’t have businesses you can line up against those stocks. We also don’t have any semiconductor stocks, and that part of the US market has bounced back to all-time highs.”

The US market is dominated by hyperscalers and semis, the biggest beneficiaries of AI. Australia, by contrast, is heavily skewed towards software and marketplace businesses, including WiseTech, Pro Medicus, Xero and CAR Group.

These names have been tracking declines in US software stocks like ServiceNow, Salesforce and Atlassian - not the NASDAQ.

The silent killer: bond yields

The other piece of the puzzle is one many investors have overlooked: Australia’s interest rate story has diverged from the rest of the world.

“If you look at the 10-year bond yield in Australia, it bottomed out at nearly 4% and then we had that nasty inflation print. 10-year bond yields went from nearly 4% to nearly 5% in a very short period of time.”

Growth stocks are highly sensitive to interest rates, and this was the same dynamic that drove the 2022 sell-off.

“We have decoupled from the rest of the world in terms of our interest rate outlook,” Clark says.

“And so the first wave of selling had nothing to do with AI. It was a uniquely Australian interest rate story.”

A market that can’t make up its mind

If there’s one chart that captures the chaos in tech, it’s this.

Software valuations surged 16 months ago as the market priced in an AI-driven boom. Since then, those same multiples have compressed sharply as sentiment flipped.

“What we can see here is the PE multiple that these businesses have traded on. About 16 months ago, we saw this incredible move higher - the market was saying earnings would explode in an AI world.”

In a short space of time, the market has gone from believing these companies could do no wrong to questioning whether they can survive at all.

Did they deserve to go to the moon? Probably not. Are they all doomed now? Probably not.

But that indecision has created a tantrum in the market, and with many software and growth stocks still 30-50% off their highs, it’s creating opportunity.

"As a basket of stocks, I think we are now coming out of this period where really it's been the perfect storm in many ways for a lot of these businesses."

What he’s looking for now

Clark’s view is that the market has treated software as a single category and that’s where it’s gone wrong.

Aside from strong cashflows, balance sheets and profitability, he’s looking for a few key signals, with one of the being urgency.

“We want companies that are acting with an absolute urgency to embrace AI, not sitting back and thinking they can keep running as they did in 2023 or 2024."

There are early signs of this playing out.

Some companies, including WiseTech and Block, are using AI to cut costs and expand margins. Others are embedding AI into their products to increase value and justify higher pricing.

"Xero customers will be able to use Claude dialled into their ecosystem to do all sorts of planning and budgeting, forecasting and work that they couldn't do previously, will potentially put more value on their Xero subscription."

Another signal he’s watching closely is insider buying. Typically, company insiders sell their shares after reporting season, but some have gone the other way.

"We're also seeing a lot of on-market buybacks be announced by directors, so they're good signals."

During the February reporting season, several key company CEOs bought their company's stock:

• WiseTech CEO Zubin Appoo bought ~$1 million of stock
• REA CEO Cameron McIntyre added ~$150,000 
• Pro Medicus CEO Sam Hupert picked up ~$500,000

Where he’s finding value

Clark has been selectively adding to positions after taking money out of growth stocks 18 months ago when valuations overshot.

Now, he’s finally getting a crack at names he’s wanted for years, with Pro Medicus (ASX: PME) and Life360 (ASX: 360) being new portfolio additions after they got to "earnings multiples we’ve never seen them trade on before - but on the low side.”

But when it comes to quality, Clark says the US is the indisputable leader, and that Microsoft (NASDAQ: MSFT) is his highest conviction tech bet.

"We think it is also the hardest to disrupt, and the hedge it has is Azure, the world's second largest cloud storage business and OpenAI now, which it's a majority shareholder of," he says.

Unlike Australian names tied to a narrower set of products, Microsoft is a globally diversified ecosystem.

“And you just look at that stock it got down to US$365 a few weeks ago. It’s now at US$435 on no change in information on 22 April."

Realise you might be wrong

For all the opportunity, Clark is clear on one thing: don’t get carried away.

“Don’t bet the kitchen sink on it,” he says, adding that it's too risky to bet the portfolio on a bunch of software names. Position sizing and sector weights still matter.

“Our approach has been sticking with what we own, but we're broadening out because we don’t necessarily know the answers.”

At this stage, the focus should be on businesses with strong earnings visibility.

“If you’re looking at anything with even a slight question mark on short-term earnings, don’t go near it,” he says.

And above all, as attractive as some opportunities look, AI remains a highly disruptive force - and no one really knows how this plays out.

"You can have conviction in the stocks that you own, you've also got to recognise you might not be right because the answers are unknown."