Israeli High-Tech Faces Shortage of 18,000 Workers Amidst Growth Shifts

A new policy paper from the Phoenix Institute for Capital Market Research at Reichman University reveals significant shifts in Israel's high-tech sector, indicating a growing gap between growth drivers and their reflection in the local capital market. Despite economic recovery and capital raising, the industry's growth is becoming more concentrated, employment in Israel is not returning to its pre-pandemic growth trajectory, and an increasing portion of company operations are moving abroad. Investments are focusing on fewer companies and technological fields, primarily artificial intelligence and cybersecurity, while the local stock market only partially reflects these industry changes. By 2025, approximately 400,000 people were employed in Israeli high-tech, about 18,000 (4.5%) fewer than would have been expected if the pre-COVID growth rate had continued. Concurrently, the percentage of employees working in Israel out of all employees in private Israeli high-tech companies dropped from around 69% in 2019 to about 62% in 2026. This decline is also evident in research and development, suggesting an expansion of overseas operations even in core technological activities.

In the first half of 2026, the average capital raised per deal reached approximately $39.3 million, the highest level in the examined period, though the number of deals remained low compared to peak years. Furthermore, the proportion of initial investments by venture capital funds fell to just 35.5% of all investment deals, meaning about 65% of deals are directed towards follow-on investments in companies that have already received funding. Researchers warn this trend could shrink the base of new companies from which the next generation of Israeli high-tech will emerge. Within three years, the share of Core AI companies in capital raising surged from about 12.7% to 35.2%, with investments in them growing from approximately $2 billion to $5.1 billion. Simultaneously, the cybersecurity sector's share of capital raising rose from about 15% in 2016 to 44% in 2025, indicating a growing concentration of investments in a limited number of technological fields.

The study also found that the composition of the TA Technology Index differs from the investment focus in private high-tech companies, and the link between technology stock performance and high-tech GDP growth has weakened significantly in recent years. Since 2023, local factors have played a larger role in pricing technology stocks in Israel, alongside global trends. Itay Kedmi, Head of Financial Analysis at the Phoenix Institute for Capital Market Research at Reichman University, stated, "Israeli high-tech continues to demonstrate strength and attract significant investments, but the recovery is not as broad as it appears. More capital is concentrating in fewer companies, a growing part of the activity is taking place outside Israel, and employment is not returning to its previous growth path. The challenge is to ensure that the success of large companies translates into the growth of new companies, job creation in Israel, and strengthening the connection between the high-tech industry and the local capital market."