Top broker picks two ASX 200 tech shares for today’s economy

A top broker has revealed which two ASX 200 tech shares are likely to best withstand weaker demand in a softened economy.

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Key points

  • The S&P/ASX All Technology Index has lost 35% in value year to date
  • Top broker Citi has selected two ASX 200 tech shares that are likely to navigate today's economy better than others
  • Those two ASX 200 tech shares are NextDC and WiseTech 

Technology shares have borne the brunt of the ASX 200 sell-off in 2022.

The S&P/ASX All Technology Index (ASX: XTX) has lost 35% in value year to date.

This compares with a 12.6% decline in the S&P/ASX 200 Index (ASX: XJO).

Macro-economic forces including rising inflation and interest rates are worrying investors.

In such conditions, consumers tend to tighten their belts to ensure they can pay their bills, make their mortgage payments, and buy essential items.

This means there’s every chance of a tough time ahead for the Australian economy.

This makes investors nervous and growth shares have fallen out of favour as a result.

Tech shares, in particular.

But top broker Citi says some ASX 200 tech shares are likely to withstand the choppy waters ahead better than others.

Which ASX 200 tech shares are Citi’s picks?

According to reporting in The Australian, Citi says the two ASX 200 tech shares likely to navigate a softened economy and demand weakness best are NextDC Ltd (ASX: NXT) and WiseTech Global Ltd (ASX: WTC).

Citi has told clients in a note that tech multiples are “now trading well below pre-Covid levels”.

Citi said its own portfolio of 200 global shares in software, internet, and fintech service providers is now below the long-term average on a growth-adjusted enterprise value to revenue (EV/R) basis.

According to the note: “While valuation and cost pressures have been the key focus to date, we see
potential risk in the near-term from rebasing of revenue growth expectations.”

Why does Citi like NextDC and WiseTech?

For data centre operator NextDC, Citi sees the contracted backlog underpinning FY23 estimated earnings, according to the article.

However, the broker does see risk to NextDC’s FY24 earnings if material contract wins do not eventuate in FY23.

The NextDC share price dipped by 0.37% today to finish the session at $10.91.

For cloud software solutions business Wisetech, Citi said slowing freight volumes were a headwind.

However, customer wins and wallet expansion through the adoption of new modules are likely to drive strong growth, the broker said.

“Further, there is potential for further cost out as WiseTech integrates all of its acquisitions,” said Citi.

The WiseTech share price finished 5.17% higher today at $40.70.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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