Israeli Tech Sector Faces Contradictory Trends Amid Global AI Shift

Microsoft's development center in Israel is set to lay off dozens of employees as part of a global organizational restructuring. This follows a trend of tech sector cutbacks that have become common in recent years. Meanwhile, cybersecurity firm CrowdStrike recently acquired Israeli technology company XM Cyber for approximately $600 million, a deal expected to lead to significant layoffs at XM Cyber, which employs around 400 people, mostly in Israel. Despite these layoffs, the average salary in Israel's high-tech sector rose to 34,301 shekels in July, a 2.3% increase from July 2025. However, this rise is occurring alongside a decline in research and development positions. The number of salaried jobs in high-tech in July was 397,300, a decrease from both June 2026 and July 2025. These job losses are concentrated among junior staff, support roles, and non-critical teams, contributing to the rising average salary but a shrinking workforce. While tech jobs are increasing in finance, industry, and defense, most laid-off workers find new employment due to a general labor shortage in Israel. Adding to the complex picture, Israeli startup Geniez AI was acquired by Rocket Software for about $100 million, just a year after its founding, by a team of only six employees. This acquisition highlights a broader global shift in the tech industry driven by artificial intelligence. Foreign tech companies cut 4,400 jobs in Israel in 2025 due to the ongoing war and a low dollar exchange rate, diminishing Israel's attractiveness. The Israeli Ministry of Finance is considering significant tax incentives for tech entrepreneurs to prevent them from leaving the country, fearing a reduction in tax revenue. Discussions about taxing stock options have been replaced by a committee examining incentives to retain the high-tech sector in Israel. While the global tech industry grapples with AI's impact, Israel's heavy reliance on high-tech as its primary "natural resource" makes these trends particularly concerning. The rising average salary, while beneficial to individuals, may not be positive for the economy as a whole, given the decrease in overall employment in a sector crucial for national growth and revenue.