Run into the fire, not away: Ben Clark is buying into the growth sell-off

TMS Capital’s Ben Clark isn’t panicking about the sharp sell-off in high-growth stocks. In fact, he says he’s “licking his lips”.

After years of relentless gains, technology and software stocks have been hit hard, with names such as Microsoft, Xero, Life360 and Pro Medicus all falling sharply in recent weeks. For many investors, the speed and scale of the correction has felt unsettling.

“It’s just incredible how quickly the narrative has flipped,” Clark says. “These businesses were seen as the winners of the AI revolution not long ago. Now the market is freaking out about whether software companies can even survive in an AI world.”

But Clark sees it differently. He believes the sell-off says far more about fear than fundamentals and that it’s creating compelling opportunities. Here, he outlines three lessons from past market cycles and the five stocks he’s been buying as prices fall.

1. Growth sell-offs are often indiscriminate (and that's a good thing)

The first thing Clark points to is how broad the sell-off has been, particularly across software-as-a-service (SaaS) companies. The catalyst was a series of AI product announcements, including a new legal-focused tool from Anthropic’s Claude model, which sparked concerns that AI could disrupt large parts of the software industry.

“The market has basically taken one development and extrapolated it to mean every software business in the world is about to lose a lot of their customers,” Clark says.

For him, the lack of discrimination is key.

“If this was fundamentally driven, there would be clear winners and losers. Instead, everything has been sold. Even Microsoft - the biggest software company in the world - fell more than 20% in a matter of days," he says.

That kind of price action, he argues, is classic “shoot first, ask questions second” behaviour and often marks the early stages of opportunity.

2. Markets overestimate how fast behaviour changes

Clark draws an important parallel between AI and a previous market episode: GLP-1 weight-loss drugs.

When these treatments went mainstream, markets rushed to price in sweeping behavioural changes. Stocks such as ResMed and Fisher & Paykel Healthcare fell by around 50%, while airlines rallied on the idea that thinner passengers would mean lower fuel costs and higher profits. A fair chunk was eaten out of fast food share prices as well.

“We were looking at this thinking, ‘this just doesn’t make sense’ ...  and it’s a good learning lesson because if you fast forward to today, McDonald’s is at an all-time high," Clark says.

While drugs like Ozempic have become popular among millions of people, that hasn’t meant they stopped hitting the drive-through. And that’s the key point: human and corporate behaviour doesn’t change overnight.

“The market got the change right, but it got the behaviour wrong,” he says. “Behaviour is sticky, and it evolves slowly over years or decades.”

He believes the same logic applies to software. Businesses don’t abandon mission-critical platforms overnight because of a new AI tool. Some disruption will occur, but it won’t be universal and it won’t be immediate.

3. Volatility is the price of admission for strong returns

The third point Clark makes is one investors often forget in the heat of a sell-off: volatility is part and parcel of owning growth stocks.

“Technology has been the place to be for the last decade, but those returns came with regular 40–50% drawdowns along the way,” he says.

When those drawdowns occur, capital tends to rotate. In 2022, the Nasdaq fell more than 35% peak to trough while the ASX 200 barely moved. More recently, money has flowed into resources, with stocks such as BHP and Rio Tinto pushing towards 52-week highs.

That rotation, Clark says, is exactly why diversification matters.

“You’ve got a shock absorber in your portfolio if you own assets that benefit when growth is under pressure," he says, noting that the share prices of BHP and Rio Tinto are at record highs and are dragging the local index higher - despite tech's troubles.

Understanding this sell-off

For investors willing to look through the noise, Clark believes the current environment is ripe with opportunity. But it's critical to understand the competitive position of each company and delineate this from what the charts show.

“You have to weigh the probability of disruption against what the market has already done to the share price,” he says.

He points to Google as a cautionary tale. Two years ago, investors feared AI would destroy its search business. Instead, the company delivered multiple growth avenues and strong returns by launching its own large language model.

A similar disconnect is visible today. Many companies reporting this earnings season have beaten expectations, yet their share prices have still fallen.

Clark highlights Microsoft’s latest results as an example. While investors are focused on the scale of AI spending, revenues and earnings have remained strong. In many cases, he argues, the greater risk is not investing enough and losing a competitive position.

“These are extremely experienced management teams,” Clark says. “They know that if they don’t spend on AI, the risk of becoming disrupted becomes more real.”

The five stocks he likes right now

That conviction underpins the five stocks TMS has been adding to portfolios: Microsoft (NASDAQ: MSFT), Xero (ASX: XRO), Life360 (ASX: 360), ResMed (ASX: RMD) and Pro Medicus (ASX: PME).

There is, however, an important caveat. Clark selected these names specifically because each has recently reported or upgraded guidance, reducing near-term earnings risk - a critical consideration as reporting season approaches.

“Pro Medicus at its AGM said it’s tracking ahead of internal sales targets. ResMed reported its quarterly numbers 10 days ago and beat estimates, Life360 had a profit upgrade two weeks ago, and Xero upgraded long-term earnings guidance at its investor day,” he says.

For investors willing to brave the red ink, Clark notes these businesses have moved from "completely excessive" multiples a year ago to some of the most attractive valuations seen in years.

“This is when outsized returns are made - when you’re prepared to go against the tide and run into the fire, not away from it," he says.