Israel's vital tech sector, which faced significant challenges due to the Gaza war, is now showing early signs of recovery, fueled by a surge in defense innovation and renewed investment momentum.
According to data from the Israel Innovation Authority (IIA) published in September 2025, cutting-edge technologies account for 17 percent of the country's GDP, 11.5 percent of its jobs, and 57 percent of exports.
However, the war, which began in October 2023, severely impacted the sector, leading to staffing shortages and a hesitance from potential investors. Yet, following a ceasefire in Gaza since October, Israel's tech landscape is gradually regaining its appeal. This was exemplified in mid-December when US chip giant Nvidia ($NVDA) announced plans to establish a substantial research and development center in northern Israel, expected to employ up to 10,000 individuals.
Prime Minister Benjamin Netanyahu remarked, "Investors are coming to Israel nonstop," highlighting the renewed interest in the tech sector.
The effects of the war were felt acutely. High-tech companies had to navigate drastic staffing cuts, with 15 to 20 percent of employees being called up as reservists, according to IIA director Dror Bin.
Additionally, air traffic—a critical component of this globalized sector—was suspended between late 2023 and 2024, causing foreign investors to pause their activities and wait for better conditions.
During this tumultuous period, Israel also experienced a brain drain, with an estimated 8,300 employees in advanced technologies leaving the country for a year or more between October 2023 and July 2024. This represented around 2.1 percent of the sector's workforce.
Despite these challenges, the tech sector outperformed GDP growth in 2023, expanding by 13.7 percent compared to just 1.8 percent for GDP. However, output stagnated in 2024 and 2025, according to IIA figures.
Optimism is now returning, with Israeli high-tech companies raising $15.6 billion in private funding in 2025, a rise from $12.2 billion in 2024, according to preliminary figures published by Startup Nation Central (SNC).
Deep tech, defined as innovation driven by significant scientific or engineering advancements, including artificial intelligence and biotech, has rebounded to pre-2021 levels.
Moreover, the past two years have witnessed an explosion in Israeli defense technologies, driven by military engagements across various fronts, including Lebanon, Syria, Iran, Yemen, Gaza, and the occupied West Bank. The number of defense startups nearly doubled from 160 to 312 between July 2024 and April 2025.
Of the more than 300 emerging companies collaborating with the research and development department of Israel's defense ministry, over 130 joined during the war, according to Director General Amir Baram.
Previously, the ministry primarily sourced from larger defense firms, but the war has prompted a shift towards accepting products from startups that were not fully tested, as noted by Menahem Landau, head of Caveret Ventures.
Defense technologies have now surpassed cybersecurity as the most sought-after high-tech sector, driven by global tensions, including the ongoing war between Russia and Ukraine and rising concerns with China.