Can Israel stay ahead in the AI arms race?
Talent is abundant, but investment, policy, and education are falling behind.
Israel’s position in artificial intelligence is reminiscent of its standing in global happiness rankings: it often places in the top ten, even though many observers struggle to understand how that’s possible given the on-the-ground realities.
According to the Tortoise Global AI Index, which evaluates the performance of 83 leading countries in the field, Israel currently ranks 9th overall—and second when adjusted for population size. That’s a strong position, but it marks a drop from just a few years ago. On the eve of the generative AI (GenAI) boom, Israel ranked fifth in the same index, which factors in investment in research, commercialization, and human capital. In that time, countries like Singapore, backed by major government initiatives, leapt from tenth to third.
The extravagant announcements during U.S. President Donald Trump’s visit to the Gulf, showcasing figures like OpenAI’s Sam Altman and Nvidia’s Jensen Huang (whose company has operated an AI supercomputer in Israel since 2023), are feeding Israeli anxieties: have we also missed this train - not just the political one?
Opinions are split on Israel’s AI progress, and some self-criticism is warranted. But even amid headlines about Saudi billionaires and sovereign wealth funds pouring money into AI supercomputers, one critical resource remains in Israel’s favor: human capital - something Saudi Arabia still lacks in depth.
Take Nvidia, for instance. While the world marvels at Saudi Arabia’s deal to acquire 18,000 of its cutting-edge Blackwell chips, part of the supercomputing architecture built on those chips was developed at Nvidia’s Israeli R&D center - the company’s second-largest globally. Supercomputers alone are insufficient. They require skilled personnel to unlock their potential. On this front, Israel still holds a clear advantage over most nations, especially across the Middle East.
So where does Israel stand in the global AI race, and why are people increasingly concerned about its status?
The simple answer is money. Public investment remains low relative to other countries. This week, Uri Gabai, CEO of the RISE Israel Institute, noted that France, hardly the world’s most innovative tech hub, has allocated €100 billion to its national AI program. Israel’s multiyear plan, by contrast, is budgeted at just NIS 1 billion (roughly €250 million), spread over two three-year phases. That’s hardly competitive.
While Israel consistently ranks among the top countries for R&D spending, this is driven almost entirely by private sector investment, primarily from venture capital, rather than government funding. But in AI, that formula is beginning to falter. Israeli VC investment in AI has risen by less than 85% over the past three years - compared to 900% growth in the U.S. and 300% in Europe.
According to CB Insights, only two Israeli companies appeared on its latest list of the world’s leading AI startups: Decart and Orca AI. Notably absent was AI21, considered the leading Israeli GenAI company and one of the only firms developing its own large language model (LLM). In contrast, Israeli firms dominate similar lists in cybersecurity and fintech.
Other indicators paint a similar picture. A RISE report shows that investment in natural language processing (NLP) in Israel grew just 24% between 2020 and 2023 - far below the U.S. (183%) and Europe (54%). Investment in computer vision even declined over the same period.
This presents a two-fold problem: Israel has a vibrant, globally integrated AI sector, but it is growing too slowly relative to the competition. That risks long-term erosion of its leadership.
One of Israel’s biggest assets is the presence of global tech giants, from Nvidia to Google, whose R&D centers anchor the local ecosystem. At the global level, a key realization has taken hold: the driving force behind AI’s next revolution is no longer the startup scene but the tech multinationals. They hold the capital, the infrastructure, and the ability to attract top talent, reclaiming developers who had drifted to startups during the last decade. In Israel, these companies employ roughly one-third of all high-tech workers.
This is the “chicken-and-egg” of Israeli tech: global companies come to Israel because of the talent, and their presence sustains the talent pool.
And that human capital remains Israel’s ace. According to Stanford University’s AI Index, Israel ranks first globally in the concentration of AI-skilled professionals, ninth in the growth of that concentration over the past eight years, and fifth in the penetration of AI-relevant skills between 2015 and 2023.
But here too, cracks are emerging. Unlike cybersecurity or fintech, where IDF experience often substitutes for formal education, AI innovation requires advanced academic credentials. A RISE analysis shows that 47% of AI startup founders hold academic degrees in technology, compared to just 39% in the broader high-tech sector. While Israel graduates many undergraduates, it lags in producing advanced degree holders, in part due to delayed university entry from military service and a tendency to enter the workforce without pursuing master’s or doctoral studies.
As wealthy nations like Saudi Arabia and the UAE double down on AI, Israel’s relative position could weaken. A growing wave of “relocation”, especially to the U.S., has already begun, driven by Israel’s deteriorating geopolitical and domestic situation. The Gulf states have successfully recruited tech professionals from Russia and Ukraine and are eager to do the same with Israelis.
Employment data adds another layer of concern. The high-tech workforce is no longer expanding. Since 2023, the total number of high-tech employees has stagnated, and even declined. In February 2025, 6,990 programmers were actively seeking work in Israel, up more than 1,000 from just three months earlier. A full cohort of computer science graduates is now struggling to find jobs.
Worryingly, the historic strength of Israel’s high-tech sector, high-quality programmers, is losing relevance. According to Anthropic CEO Dario Amodei, AI systems could write 90% of all code within six months. This shift in demand - away from programmers toward "elite engineers" who understand and operate AI systems - poses a strategic threat to Israel’s tech foundation.
Unless Israel quickly reforms its education system, training pathways, and employment policies, it risks becoming a glorified test lab for global companies. rather than a sovereign tech leader.
Some argue that the heavy presence of tech giants, about 400 global corporations operate in Israel, is partly to blame for the sharp decline in new startup formation. In uncertain times like the past two years, it’s simply safer to work at Microsoft or Amazon than to risk launching a company.
Israel’s AI position is worrying, but not hopeless. With bold action, the country can recover the ground it has lost since the generative AI boom began with ChatGPT’s launch. For two years, AI policy has languished outside the spotlight. But the game is far from over. Business models are still evolving. The global architecture of AI consumption, at both the individual and enterprise level, is still taking shape.
If Israel ditches its complacency, which is boosted by the many exits and the funds they bring into the country, and embraces a coherent, aggressive AI strategy - starting with political stability and reversing the brain drain - it can still chart a new course.
