Recovery of Israel's Tech Sector Amid Ongoing Conflict

Israel's technology sector, a crucial component of its economy, has begun to show signs of recovery following the disruptions caused by the ongoing conflict with Hamas, which escalated after the group's attack on October 7, 2023. The sector, which contributes 17 percent to the nation's GDP, 11.5 percent of jobs, and 57 percent of exports, faced significant challenges during the war, including staffing shortages and decreased foreign investment. According to the Israel Innovation Authority (IIA), the war led to a brain drain, with approximately 8,300 employees in advanced technologies leaving the country for a year or more between October 2023 and July 2024.

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As a ceasefire has largely held since October, investor confidence is gradually returning. Notably, in December 2025, Nvidia announced plans to establish a substantial research and development center in northern Israel, potentially employing up to 10,000 individuals. Prime Minister Benjamin Netanyahu remarked on the influx of investors, stating, "Investors are coming to Israel nonstop." The tech sector's recovery is critical, especially as it had previously outpaced overall GDP growth, achieving a 13.7 percent increase in 2023 compared to a mere 1.8 percent for GDP.

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The ongoing conflict has also catalyzed a significant increase in defense technology startups. Between July 2024 and April 2025, the number of startups in this sector nearly doubled from 160 to 312, as reported by Startup Nation Central (SNC). The Israeli Defense Ministry has shifted its focus, collaborating with over 300 emerging companies, with more than 130 of these partnerships formed during the war. Menahem Landau, head of Caveret Ventures, noted that the conflict prompted the ministry to accept products from startups that were not fully finished or tested, indicating a shift in procurement strategies.

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The rise in defense-related technologies has surpassed cybersecurity as the most sought-after high-tech sector, driven by global tensions, including the war between Russia and Ukraine and rising concerns regarding China. The IIA's preliminary figures indicate that Israeli tech companies raised $15.6 billion in private funding in 2025, a notable increase from $12.2 billion in 2024. Despite stagnation in output during 2024 and 2025, industry professionals express optimism about a turning point for the sector.

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Amir Baram, Director General of the Israeli Defense Ministry, highlighted the rapid growth of defense startups, stating, "Over 130 joined our operations during the war." He emphasized the shift in sourcing strategies, moving from established defense firms to innovative startups.

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Critics argue that the rapid expansion of defense technologies may overshadow other vital sectors within the tech industry. Concerns have been raised regarding the sustainability of this growth and the potential long-term impacts on Israel's overall technological landscape.

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While the IIA reports a recovery trajectory, some sources indicate that the tech sector's output stagnated in 2024 and 2025. There is also a lack of clarity regarding the specific reasons behind the brain drain, including the proportion of employees who have returned to Israel.

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“Investors are coming to Israel nonstop,” — Benjamin Netanyahu, Prime Minister of Israel

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“over 130 joined our operations during the war,” — Amir Baram, Director General of the Israeli Defense Ministry

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“Defense-related technologies have replaced cybersecurity as the most in-demand high-tech sector,” — Menahem Landau, Head of Caveret Ventures

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