Nvidia's Mellanox Drives Israel's Economic Growth Despite Overseas Production

Six years after Nvidia acquired Mellanox from Yokneam, Israel's economy has become heavily reliant on the tech giant's Israeli division, despite the fact that none of the actual chip manufacturing occurs within Israel. Mellanox's production takes place primarily at TSMC's facilities in Taiwan, with products exported globally or integrated into servers by American companies like Dell and HP. This unique situation prompted Israel's Central Bureau of Statistics to create a new metric that excludes export activities conducted outside the country to better reflect domestic economic growth.

In the second quarter of 2025, Israel's economy grew by 15.4% year-over-year, but when excluding exports not crossing Israeli borders, growth was 14.4%. This discrepancy is largely attributed to Mellanox's operations. Mellanox's quarterly revenues surged from an average of $3 billion in 2024 to nearly $15 billion in early 2025, increasing its share of Nvidia's total revenue from 11% to 18%. This growth is driven by rising demand for AI services requiring complex processor synchronization, a specialty of Mellanox's Israeli division.

Economists caution that while Mellanox's success boosts Israel's GDP and tax revenues, it does not directly improve local employment or worker productivity. The company's heavy reliance on overseas manufacturing means the economic benefits are somewhat detached from Israel's real economy. Comparisons are drawn to Intel, once dominant in Israel but now scaling back operations and investment.

Despite not producing chips domestically, Nvidia pays significant taxes in Israel and maintains close ties with the government, which offers incentives including reduced corporate tax rates. The Israeli government also plans substantial purchases of Nvidia's graphic processors, totaling $13 billion over the coming years. Experts suggest that while Nvidia's impact is substantial, Israel's broader high-tech sector remains stable and diverse enough to sustain growth without overdependence on a single company.