A special report led by Prof. Eugene Kandel, former head of Israel’s National Economic Council and current chair of the RISE Institute for Israeli High-Tech Research, raises concerns about the future of Israel’s tech sector.
Despite high-profile successes—such as cybersecurity firm Wiz’s $32 billion sale to Google and eToro’s IPO on Wall Street at a valuation of over $4 billion—the report warns that deeper, negative currents threaten the foundations of the industry.
RISE, which is directed by Uri Gabai, examined whether the assumptions that underpinned the Israeli tech sector for decades still hold true. The answer, the authors caution, is increasingly no.
These challenges stem not only from domestic political upheaval and the war in Gaza but also from the global artificial intelligence (AI) revolution, which tends to disrupt the old order and empower new players. As Israel grapples with internal instability and ongoing fighting, it may struggle to keep up.
“Many assume that Israeli high-tech will weather all storms thanks to its talent, dynamism and strong fundamentals,” the report read. “But more and more of those assumptions are proving false. The risk of a ‘perfect storm’ is rising—a mix of internal instability, Israel’s declining global image, technological shifts that weaken its advantages and a global recession triggered by trade wars.”
RISE still believes in a scenario where these pressures will ease once the war ends and leading AI players stabilize. But it also outlines a less optimistic scenario: a shrinking sector, concentrated in a few industries and successful companies, no longer driving Israel’s broader economy.
“We can't ignore this scenario,” Kandel wrote. “It’s irresponsible to assume the tech sector is shockproof and will inevitably rebound. Government policy must hedge risks—not bet that 'everything will be fine.'”
Talent shortage reverses
The report’s most troubling signal concerns human capital, long seen as Israel’s most valuable natural resource. For over a decade, the local tech industry faced a constant worker shortage—estimated at 20,000 unfilled positions. But since early 2023, that trend has reversed. The number of workers in the sector has stagnated and there’s been a sharp, steady rise in job-seeking programmers.
In fact, the share of high-tech job seekers has doubled relative to their presence in the overall workforce. This is not unique to Israel—it’s happening in the U.S. too—likely due to AI reducing the uniqueness of coding skills, turning them into a commodity. If this trend continues, Israel’s competitive edge could erode significantly.
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Startups losing ground
Another red flag is the growing weakness of Israeli startups—historically the backbone of the country’s innovation and the foundation of the “Startup Nation” brand. The AI revolution demands vast resources that most startups can't provide: energy, computing power and sophisticated algorithms for training models.
Innovation is shifting back to big tech firms, academia and governments, leaving startups struggling to compete. This, the report argued, is one reason fewer startups are being launched. In 2023, for the first time in the industry’s history, more Israeli startups shut down than were founded.
Another sign of decline is the drop in venture capital funding. According to the report, based on long-term trends, Israeli startups should have raised $20 billion in 2024. In reality, they raised only about half.
While this trend isn’t unique to Israel, it undermines the country’s edge. Israel risks becoming a “research lab” for tech giants like Google and Microsoft—feeding others’ innovation rather than creating its own.
IDF pipeline no longer sufficient
Israel’s traditional edge—startups emerging from elite IDF technology units—also appears to be weakening. While these units fueled the country’s dominance in cybersecurity, fintech and enterprise software, they are not yet a significant source of AI expertise.
Today, innovation is shifting toward hardware, energy and health—fields where Israel is less competitive. Its small size also works against it, as it lacks the massive government funding seen in countries like the U.S., China, Canada or across Europe.
Of the 34 unicorns (startups valued at over $1 billion) born in 2025, the majority are in AI and just one is Israeli. CB Insights’ 2025 list of the top 100 AI startups worldwide includes only four from Israel: Evinced, Bria, Decart and Orca. While 2–4% of global representation may not sound bad, it's not enough to maintain Israel’s technological leadership in AI.
Geopolitical turmoil adds pressure
Adding to the tech sector’s troubles is Israel’s geopolitical instability, which for the first time in decades is impacting an industry long seen as a “nature reserve”—untouched by politics. But according to RISE CEO Uri Gabai, the problems didn’t begin in 2023.
“There’s a big gap between what we tell ourselves and the actual numbers. This didn’t start with the judicial overhaul or the war. It began with the political deadlock and repeated elections—government ministries barely functioned for at least three years since 2019,” Gabai said.
“Israel has lost its ability to engage in strategic policy planning. We’re not going to get another ‘gift’ from the IDF like we did with cyber. AI works differently—it requires deliberate, strategic thinking.”
Gabai added that the report’s publication was delayed out of concern. “We waited a long time before releasing it, hoping the current crisis was just temporary. But now it’s clear this has gone on too long. Even if the war ends tomorrow, the negative trends won’t reverse overnight.”
He also dismissed the common argument that the issues are global, not uniquely Israeli. “Even if the U.S. is seeing fewer startups, it still has massive tech companies pulling the sector forward. In Israel, the dependence on high-tech is much greater and within high-tech, startups play a disproportionately large role.”
“Israel’s brand is eroding. For 20 years, the government has assumed the tech sector will take care of itself—but that’s no longer the case.”
RISE laid out a series of government policy steps to mitigate the worsening situation. However, the authors noted that these proposals are unlikely to gain traction until the war ends and a new government takes office.