Four warning signs that reveal the true state of Israeli high-tech
RISE Institute dismantles the myth of resilience with data on jobs, startups, capital, and AI leadership.
Will it necessarily "be okay"? This is the central question that arises from a special report edited by Prof. Eugene Kandel, written at the RISE Institute for Israeli high-tech research and obtained by Calcalist. Although the high-tech sector is seemingly demonstrating surprising strength throughout a year and a half of war, and is even producing unprecedented exits such as the sale of cybersecurity company Wiz to Google for $32 billion and the IPO of eToro on Wall Street at a valuation of more than $4 billion, there are troubling undercurrents beneath the surface.
The report, prepared by the RISE Institute, chaired by Kandel and managed by Uri Gabai, examines whether the foundational assumptions on which Israeli high-tech has relied over the past few decades are still valid. The answers are not encouraging. This is not necessarily due to unique domestic changes, but also because of the global AI revolution. Revolutions of this magnitude often displace previous leaders and usher in new dominant players. Precisely at the peak of this upheaval, Israel is immersed in a war, which hampers its ability to cope, beyond the objective challenges. For comparison, Japan lost its technological lead with the rise of the Internet, while Israel joined the ranks of global leaders during that same era.
"The basic assumption of many is that Israeli high-tech, because of its talent, dynamism, and strong fundamentals, will survive all crises," the report’s authors write. "But more and more assumptions are proving invalid, and the chance of a 'perfect storm' scenario is increasing - a combination of internal instability, a decline in Israel's global image, technological shifts that undermine Israel’s comparative advantages, and a global recession caused by trade wars."
RISE still believes in a more optimistic scenario: a temporary recession that fades once the war ends and global AI leadership stabilizes. But a less optimistic possibility exists, in which Israeli high-tech shrinks and concentrates in just a few sectors and a handful of successful companies. In such a scenario, it would cease to be the engine of economic growth. "In our opinion, this scenario cannot be ignored. At the policy level, we believe that the concept that Israeli high-tech is immune to shocks and will inevitably rebound is not a responsible position. The role of government policy is, among other things, to hedge against risks, not to bet that everything will work out," writes Kandel.
What are the signals that concern the report’s authors? The clearest comes from the foundation of Israeli high-tech: human capital, the country’s most important natural resource. For more than a decade, the sector has suffered from a persistent shortage of skilled workers, with figures consistently pointing to a gap of 20,000. However, since early 2023, the number of high-tech employees has stagnated, and there has been a sharp, continuous rise in job seekers, particularly among programmers. In fact, the proportion of high-tech job seekers relative to all job seekers has doubled and now exceeds their share of the labor force. This trend is not unique to Israel and is also visible in the U.S., pointing to a shared cause: artificial intelligence, which is turning programming from a specialized skill into a commodity. If this continues, it will seriously undermine Israel’s competitive edge.
Another red flag comes from the startup sector, long the broad base of Israeli innovation and the key to its global edge, famously dubbed the “Startup Nation.” But the AI revolution is imposing new demands, especially access to massive resources that startups struggle to afford: energy, computing power, and sophisticated algorithms. Global innovation is reverting to big tech firms, academia, and governments, making it harder for startups to compete. RISE sees this as a key reason for the drop in new startup formation in Israel. The peak of this alarming trend came in 2023, when, for the first time in the history of the local industry, the number of startups that shut down exceeded the number founded.
A further sign of the waning prestige of startups relative to large, public companies is the sharp decline in capital raised and in venture capital activity. According to the report, based on historical trends, Israeli startups should have raised $20 billion by 2024, but in reality, raised only half that amount. While this drop mirrors global trends, it has outsized implications for Israel, whose tech industry risks becoming a mere “research lab” for global giants like Google or Microsoft, without generating its own homegrown innovation.
The AI revolution also highlights another of Israel’s historical advantages: the growth of startups seeded within IDF tech units. These units were the origin of many successes in cyber, fintech, and enterprise software. But today, they do not appear to be driving expertise or leadership in artificial intelligence. Innovation is shifting to areas such as hardware, energy, and healthcare, fields where Israel is relatively weak. Here, Israel’s small size works against it, especially given the massive government investments being made by countries like the U.S., China, Canada, and across Europe. Of the 34 AI unicorns born in 2025, only one was Israeli. A CB Insights report identifying the world’s 100 most promising AI startups listed only four from Israel: Evinced, Bria, Deci, and Orca. One might argue that a 2%–4% share is reasonable, but it’s hard to base national tech leadership on a handful of companies.
All these warning signs are compounded by Israel’s geopolitical situation, which, for the first time in decades, is directly affecting the high-tech sector, long considered a protected “nature reserve.” But according to RISE CEO Uri Gabai, the problems began even earlier. “There’s a big gap between the story we tell ourselves and the actual numbers. It didn’t begin in 2023 but during the repeated election cycles. Since 2019, government ministries have barely functioned for at least three years. In recent years, Israel has been bad at strategic governance. We can’t expect another ‘gift’ like cyber from the IDF. AI works differently, it requires deliberate strategy and planning,” he says.
Gabai notes that the release of this sobering report came after internal hesitation. “We waited a long time before publishing because we thought maybe most of the impact was due to judicial reform or the war. But now it’s clear this has been going on for too long. Even if the war ends tomorrow, some of these negative trends won’t reverse quickly,” he says. “People say, ‘It’s not just us - it’s a global problem.’ But that doesn’t mean it isn’t a problem or that we don’t need solutions. Even if the U.S. has fewer startups, it has far more tech giants ready to lead the sector forward. Israel’s ecosystem is much more sensitive. The economy is more dependent on high-tech, and within that, the startup component plays a far greater role than in other countries. The Israel brand is eroding. The government has grown used to high-tech succeeding on its own for 20 years and hasn’t internalized that this is no longer the case.”
RISE proposes a series of policy steps to address the troubling situation, but realistically, it’s unlikely that any serious action will be taken until after the war ends and the government changes.
