What are 3 of the safest ASX 200 tech shares in Australia right now?

Here's how these tech companies stand out in a turbulent market.

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The global population's hunger for software and data shows no signs of abating, and the question on many an investor's mind is, what does this mean for ASX 200 tech shares?

As recently penned by my colleague Mitch Lawler, the ASX tech sector traded at nosebleed valuations throughout April. In fact, many investors believe tech shares are not a safe place to park their money right now, given such high valuations.

Let's also paint the current economic scene for a moment.

The Reserve Bank of Australia (RBA) expects economic growth to "remain low over the next year", only picking back up well into 2025. It also predicts inflation won't return to target levels until the second half of next year, potentially ruling out the chance of a rate cut in 2024.

Hardly conducive to growth.

However, returning to the subject of ASX tech shares, I'm of the opinion that tech companies with outstanding projected revenue growth in the face of economic uncertainty have a competitive advantage. That is why, when looking at ASX tech shares, it's important to gauge what's behind the optimism.

One theme that has recently supported surging tech stock prices is artificial intelligence (AI). This has given rise to new growth in data centres.

For instance, according to consulting giant McKinsey, global demand for data centres is forecast to grow by 10% per year until 2030, driven by advancements in computing and AI.

So, against this backdrop, here are three ASX 200 tech companies analysts think will hold up well in the current climate, despite high valuations in the sector.

TechnologyOne Ltd (ASX: TNE)

When I think "safety", I think stability. For many ASX 200 tech stock investors, this means solid annual recurring revenue, or "ARR" for short.

Top broker Goldman Sachs also takes a keen interest in ARR, as evidenced by its recent note on enterprise software company TechnologyOne.

In case you weren't aware, TechnologyOne is one of Australia's largest public software players. It has operations in six countries. Its share price has grown from $2.52 apiece in May 2014 to $16.47 at Monday's close, an average 20% return per year.

Analysts at Goldman believe the company could grow its ARR by $425 million this year, a 35% increase from last year.

But, it says this growth potential is "not being fully reflected at [TechnologyOne's] valuation".

The broker instead values this ASX 200 tech share at $18.10, around 10% upside potential at the time of writing.

TechnologyOne has also increased its dividend every year since 2005, and any growth in ARR could potentially support continued dividend hikes.

Xero Ltd (ASX: XRO)

After Xero announced it would introduce a number of price increases on its Australian subscription plans, Goldman Sachs flagged the accounting platform as a standout looking forward.

The announced changes will see an 8% to 14% average price increase across all plans, effective 1 July this year.

Following the update, Goldman immediately upgraded the company's FY 2025/2026 revenue projections by 2% to 3%, "reflecting strong ANZ annual revenue per user".

"We see Xero as very well-placed to take advantage of the digitisation of SMBs globally", the broker added in its note.

Goldman analysts also estimate the ASX tech share's total addressable market to be around $91 billion, and growing.

That's currently around 4.7 times the size of Xero's market capitalisation of $19.1 billion, illustrating the size of the opportunity.

As such, Goldman values Xero at $156 apiece, which is around 27% upside potential, as I write.

Nextdc Ltd (ASX: NXT)

Shares in regional data centre operator Nextdc have rallied around 27% into the green this year.

Following this, it's little surprise to see analysts at Morgans chime in on the company, placing Nextdc in a prominent position on the data centre mantlepiece.

Morgans projects Nextdc could "comfortably" generate over $300 million in earnings before interest, tax, depreciation and amortisation (EBITDA) in the next 5 years.

That's around 50 cents per Nextdc share or roughly 2.8% of the company's market value.

Morgans rates Nextdc as a buy with a $19.00 valuation. But, as covered by my Foolish colleague James Mickleboro late last month, the broker is also eyeing a potential $40 price target by 2030.

Foolish takeaway

Even with a downturn in the economic cycle, as some are predicting, analysts have projected strong revenue growth for each of these ASX 200 tech shares.

I believe this should provide investors with a level of confidence moving forward and could even be seen as a competitive advantage.

Motley Fool contributor Zach Bristow 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 Goldman Sachs Group, Technology One, and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Technology One. 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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