Israel's Tech Sector Shows Robust Recovery Driven by Defense Innovation and Renewed Investment

Resilience Amidst Adversity: A Sector on the Rebound

Israel's crucial technology sector, a cornerstone of its national economy, is exhibiting clear signs of recovery following the profound impact of the Gaza war. Initially grappling with significant challenges, the sector has demonstrated remarkable resilience, propelled by a surge in defense innovation and a notable return of investment momentum. Cutting-edge technologies contribute significantly to the Israeli economy, accounting for 17 percent of the country's GDP, 11.5 percent of jobs, and 57 percent of exports, according to data from the Israel Innovation Authority (IIA) published in September 2025.

Initial Setbacks and Emerging Strengths

The conflict, which began in October 2023, presented immediate hurdles for the tech industry. High-tech companies faced substantial staffing cuts, with an estimated 15 to 20 percent of employees, and in some cases more, called up for reservist duty. This led to disrupted projects and delayed timelines. Additionally, foreign investors initially hesitated, and air traffic suspensions further complicated operations for this globalized sector. Between October 2023 and July 2024, approximately 8,300 advanced technology employees left Israel for a year or more, representing about 2.1 percent of the sector's workforce. The sector's output, which had seen a 13.7 percent growth in 2023, stagnated in 2024 and 2025.

Despite these initial setbacks, the industry began to turn a corner. The war itself, and the heightened regional tensions, spurred a significant increase in demand for Israeli defense technologies. The number of startups in the defense sector nearly doubled, growing from 160 to 312 between July 2024 and April 2025. This growth was further supported by the Israel Ministry of Defense, which significantly increased its investment in small companies and startups, pouring approximately $168 million over an 11-month period in 2024, a five-fold increase from the previous year.

Renewed Investment and Key Growth Areas

The investment landscape has seen a strong rebound. Israeli high-tech companies raised an estimated $12.2 billion in private funding in 2024, marking a 31% increase from 2023. This momentum continued into 2025, with preliminary figures from Startup Nation Central (SNC) indicating that Israeli tech companies secured $15.6 billion in private funding, up from $12.2 billion in 2024. The first half of 2025 alone saw $9.3 billion raised across 365 funding rounds, representing the strongest six-month period for Israeli tech funding in three years.

Major international players have also reaffirmed their commitment. In December 2024, Intel announced a $25 billion investment in a new chip factory in Israel, and Nvidia's Israel-based AI supercomputer was completed ahead of schedule in November 2024. Furthermore, in mid-December 2025, US chip giant Nvidia announced plans to establish a massive research and development center in northern Israel, with the potential to host up to 10,000 employees.

Key sectors driving this recovery include:

• Cybersecurity: This sector continues to be a dominant force, attracting a significant portion of investments. In 2024, cybersecurity accounted for 36% of total funding, with a 90% surge in funding and median rounds of $18 million.
• Artificial Intelligence (AI): AI-related companies, alongside cybersecurity, received substantial funding injections, particularly towards the end of 2025.
• Deep Tech: Innovations based on major scientific or engineering advances, such as AI, biotechnology, and quantum computing, returned to their pre-2021 levels in 2025, signaling a significant rebound.

Government Support and Future Outlook

The Israeli government has also taken steps to bolster the sector. The Israel Ministry of Finance, in conjunction with the Directorate of Defense Research and Development (DDR&D), has sought approval for a state guarantee of up to approximately $60 million (NIS 200 million) to establish dedicated venture capital funds focused on advanced defense technologies. This initiative aims to address the shortage of venture capital in high-risk defense sectors and strengthen Israel's technological independence.

While the recovery is evident, challenges such as funding uncertainty for early-stage startups and a decline in foreign investor activity in some segments persist. However, the overall sentiment among industry professionals is one of cautious optimism, with the sector's inherent innovation and adaptability proving crucial in navigating the complex geopolitical landscape.