Israeli High-Tech Sector Shows Growth Amidst Challenges
A recent report reveals promising statistics for the Israeli high-tech industry. In 2025, the sector generated $85 billion in exports, $84 billion in exits, and raised nearly $15 billion in funding. This growth reflects an 8.2% increase in output, amounting to 352 billion shekels, which represents 58% of all Israeli exports.
However, the report also highlights several concerning trends. Notably, there’s an increase in Israeli companies expanding their activities outside the country. Requests for relocation are on the rise, as key management and research roles are shifting abroad, particularly to the U.S.
As of March 2026, only 62% of employees at private Israeli high-tech firms were based in Israel, down from 69% in 2019. This change is largely driven by the growth of operational centers in the United States.
One major concern for the Innovation Authority is not just the loss of operational roles but also the relocation of senior management and R&D positions. The percentage of high-tech executives residing in Israel has decreased by approximately 9.6%, while the corresponding figure for executives in the U.S. is on the rise. This indicates a potential shift in decision-making away from Israel.
Furthermore, high-tech companies are increasingly moving their R&D activities to regions like Eastern Europe and the U.S. The report notes a concerning decline in Israel’s share of development activities, alongside pressures from the weak dollar that may further incentivize overseas operations.
A simulation in the report illustrates that a drop in the dollar exchange rate from 3.7 shekels to 3.45 shekels could lead to a 21 billion shekel decline in the high-tech GDP, roughly 1.1% of Israel’s overall GDP.
In a noteworthy change, the number of R&D employees in Israeli high-tech fell for the first time in over a decade, with a loss of around 3,500 positions. Their proportion of total high-tech employment dipped from 51% to 49%. Meanwhile, product-related roles grew to 24%, possibly hinting at increased use of artificial intelligence tools in development processes.
In spite of these warning signs, the Israeli high-tech sector bounced back in 2025, contributing to nearly half of Israel’s economic growth. The sector added 1.44 percentage points to the overall GDP gain of 2.9%.
Most of the growth stemmed from increased productivity per employee rather than a surge in hiring. The annual output per high-tech worker reached about 827,000 shekels, the highest across various sectors, significantly surpassing financial services, commerce, and construction.
By 2025, the total number of high-tech employees rose to around 400,000, accounting for 11.4% of all employed people in Israel. This represents a growth of 2.5% from the previous year, which is below the sector’s average annual growth rate of about 6% over the last decade.
Record Exports and Funding Levels
High-tech exports reached an all-time high of $85 billion in 2025, comprising 58% of Israel’s total exports. Notably, exports make up a hefty 79% of the high-tech GDP, highlighting the sector’s heavy reliance on international markets and currency fluctuations.
Israel has also solidified its place as a major global tech hub. In 2025, it secured the rank as the fourth-largest hub for capital raising, following San Francisco, New York, and Boston, and the largest outside the U.S. Israeli tech firms raised about $14.6 billion, marking a 30% increase from the previous year.
Despite this recovery, funding rounds are declining, with those under $10 million dropping to their lowest in a decade. Most of the fundraising growth came from large funding rounds involving established companies.
Exits also hit record levels, with 198 exits recorded in 2025, totaling approximately $18.5 billion in mergers and acquisitions. This figure climbs to $84 billion when accounting for significant deals completed in 2025 but approved in 2026.
Renewed Entrepreneurial Spirit
Significantly, 2025 saw 775 new startups founded, marking an uptick from 750 in 2024 and 743 in 2023. Though this number is still far below the peak of over 1,400 in 2014, the Innovation Authority views the rise as a positive indicator.
The number of multinational companies operating within Israel has also grown to 511, with 35 new firms establishing operations in 2025.
Another key trend is the increased focus on deep tech and artificial intelligence within the Israeli high-tech landscape. The report highlights advancements in defense tech, space exploration, quantum technologies, and AI infrastructure, with 35% of all investments now directed toward AI companies.
Continued Dependency on Foreign Capital
Cybersecurity and enterprise software remain central, making up over 60% of total funding, while investments in digital health have notably decreased. The report indicates that 47% of R&D funding in the private sector in Israel originates from foreign sources, compared to an average of only 9% among OECD countries. In 2025, 70% of venture capital investment in Israel was from foreign investors.
Despite this, 61% of active investors in Israel are local, primarily from venture capital funds and angel investors. Israeli venture capital firms raised about $2.4 billion in 2025, which is a 57% increase from the previous year.
A Message of Hope and Caution
Innovation, Science and Technology Minister Gila Gamliel stated that the report shows the continued resilience of the Israeli high-tech sector amid various challenges. She emphasized that innovation is not just a driver of economic growth but also a critical asset for the future of the nation.
Dr. Alon Stopel, head of the Israel Innovation Authority, pointed out that Israel’s competitive edge lies not in its market size or natural resources, but in its capacity for innovative thinking and taking risks. He cautioned that Israel must protect this advantage as competition for technology and talent intensifies.
Dror Bin, CEO of the Innovation Authority, noted the dual challenges facing the sector. While Israel continues to attract investment and innovation, key activities are shifting abroad. He stressed that there is an urgent need to sustain innovation and ensure it brings benefits to Israel’s economy.
This balanced view highlights both the growth and the evolving challenges that await the Israeli high-tech sector in the coming years.
