Warning: Israeli Tech Is Booming

Israel’s tech sector is generating record value while thinning out the domestic base that sustains it.

Israel’s tech sector looks healthier than ever. That may be precisely the problem.

In 2025, the industry delivered numbers most countries would kill for. High-tech exports rose to 57.2% of all Israeli exports, the highest share on record. Private funding rebounded to roughly $15.6 billion across 717 deals. Exit values topped $70 billion. NVIDIA announced a massive new campus. Google bought Wiz, the fastest-growing startup in Israeli history. Capital-gains taxes surged, pushing overall tax revenue up 12% and sending the finance minister into a celebratory hora.

By any conventional metric, this was a boom. Israeli tech at ludicrous speed.

Yet something fundamental did not move. High-tech employment dropped. R&D roles shrank. More engineers left the industry—and the country—than entered it.

That gap matters. Employment is not just a labor statistic, it tells a big story, especially in a small, export-driven country with a thin base of skilled tech workers (around 10% of the labor force). When tech revenue and exits surge without a corresponding expansion of the domestic talent base, it signals a dangerous disconnect between the tech industry itself and the broader Israeli economy. (Eugene Kandel talks a lot about this.)

Three forces explain the divergence.

First, capital concentration combined with AI. The $15.6 billion raised in 2025 was spread across the fewest deals in a decade. Investors crowded into a narrow band of late-stage winners—AI, cybersecurity, semiconductors—rather than seeding a broad pipeline of new companies. Those firms deployed capital to scale infrastructure first, headcount second or third. AI-driven productivity gains allowed them to ship more with fewer engineers. The result is a quiet arbitrage: Israeli talent creates value, but global firms no longer need to anchor large teams—or long-term commitments—in Israel to extract it. As productivity is being decoupled from headcount through AI, innovation is increasingly decoupled from place. Startup Nation could be turning into Subcontractor Nation: ideas seeded in Tel Aviv, scaled and controlled abroad, with Israel creating a handful of millionaires, collecting fees and taxes but not the strategic value that compounds over decades.

Second, currency pressure and margins. A strong shekel --in itself not a bad thing-- eroded the value of dollar-denominated revenues just as global markets demanded profitability over growth. Export-led software companies responded by trimming costs, not expanding teams. R&D employment fell by 6.5% in the first half of 2025. This represented roughly 14,000 fewer R&D roles in an otherwise stagnant employment environment.

Third, talent migration—both sectoral and geographic. Banks, insurers, retailers, hospitals, government agencies and defense contractors absorbed engineers who once would have built SaaS startups. With tech wages no longer soaring and IPO dreams deferred, stability and perceived national purpose became powerful magnets. Wartime demand is masking what may become a lasting drain on the civilian export engine. These flows are not easily reversible. At the same time, senior engineers and founders are making jurisdictional decisions based less on pay than on regime risk: judicial uncertainty, reserve-duty burden, family calculus. This trend predates October 7, but the war accelerated it.

Put together, the picture is unsettling. Israel’s tech sector is generating record revenue and blockbuster exits while the critical mass of talent—that wellspring of ideas and deep knowledge—is thinning domestically. Revenues, exits and tax receipts are lagging indicators of health; talent density, R&D depth and managerial experience are the leading indicators of future leverage.

The question is no longer why tech employment is flat (not enough women and minorities in tech, too centralized away from periphery, worsening education system, I can keep going). The question is whether Israel is drifting toward a model in which it supplies ideas, exits early, books short-term gains—and gradually loses control over where its technological future is built.