Israeli High-Tech's Strength Tested by Global Shifts

Despite demonstrating remarkable resilience during challenging times, including prolonged conflict and economic uncertainty, Israel's high-tech sector faces a growing concern: the gradual shift of its center of gravity abroad. In 2025, the sector constituted 18.3% of Israel's GDP, accounted for 58% of exports, and contributed half of the country's economic growth, with high-tech output reaching approximately 352 billion shekels. Israel ranked as the fourth global hub for technology capital raising and first outside the U.S.

However, underlying these strong macroeconomic figures are worrying trends. The proportion of employees in private Israeli high-tech companies working in Israel has decreased from 69% in January 2019 to 62% by March 2026. Much of this employment growth is occurring in the U.S., encompassing not only sales and marketing but also R&D and senior management. For the first time in over a decade, R&D employment in Israel declined in 2025.

Furthermore, the trend of Israeli companies incorporating abroad is accelerating. In 2025, 45% of new startups examined by IATI chose to incorporate outside Israel, a significant jump from 20% in 2022. A focused analysis of major seed investments revealed that over 85% of companies examined were incorporated as American entities, even when founded by Israeli entrepreneurs.

This shift is driven by business realities, as global operations are crucial for success and the U.S. is a key market. The primary risk lies in the potential relocation of intellectual property, R&D, management, and decision-making centers away from Israel. The strengthening shekel against the dollar exacerbates this, increasing operational costs in Israel for export-oriented companies and shortening the runway for startups funded in dollars.

The rise of Artificial Intelligence presents both an opportunity and a challenge. While Israel has a strong starting point, a clear strategy is needed. AI is already impacting hiring and layoffs, with a notable increase in companies reducing recruitment or considering layoffs due to AI implementation. The sector's historical average annual employment growth of 7% has slowed, signaling a potential shift that requires proactive measures.

To maintain its competitive edge, Israel must focus on research quality, knowledge transfer from academia to industry, specialization in areas of relative advantage, access to computing infrastructure, and retaining top talent. The government's role is crucial in creating a stable environment with clear tax and regulatory policies, incentivizing early-stage investments, ensuring access to advanced computing, and establishing national training programs for the AI era. Success should be measured not only by exits but also by the number of companies incorporating in Israel, local employment, R&D location, IP ownership, and the economic value retained within the country. The goal is not isolation, but ensuring that Israeli companies that go global maintain their core operations and value creation within Israel.