When the Israel Innovation Authority published its annual State of High-Tech report this week, the numbers were hard to dispute. Startup Nation’s output grew 8.2% in real terms last year. The sector generated $85 billion in exports, $84 billion in exits and nearly $15 billion in fundraising. Most strikingly, high-tech accounted for roughly half of Israel’s entire economic growth in 2025 and contributed 1.44 percentage points of the country’s 2.9% GDP expansion.
Each of these would make an impressive headline showcasing the strength of Startup Nation, and for a country that has been at war for some 32 months, those are indeed remarkable figures. But read past the executive summary and a more complex picture begins to emerge, raising questions about what Israeli high-tech will look like in a decade and whether the records being celebrated today are built on foundations that are changing in the wrong direction.
Let’s start with the $84 billion exit figure. The number is real, but it is also heavily concentrated in three transactions: Google’s acquisition of Wiz, which closed at $32 billion, the Armis deal for $7.7 billion and the CyberArk acquisition for $25 billion. All three were announced during 2025 but approved only in 2026.
When we consider these, the total exit value rises to approximately $84 billion. But take those deals out and the underlying M&A market, while healthy, is significantly more modest: 189 mergers and acquisitions totaling approximately $18.5 billion.
The ‘Americanization’ of Israeli tech
There was another significant finding that sat deeper in the report. As of March 2026, the share of employees based in Israel in private local tech companies stood at 62%, down from 69% in 2019, as startups have continued to shift R&D activity outside the country. That seven-percentage-point decline represents a slow transfer of the sector’s center of gravity.
The United States is the primary destination, absorbing the largest share of overseas employment growth, and not just in sales roles. This year, a further decline was recorded in the share of senior high-tech executives employed in Israel: by March 2026, the share of senior employees based in Israel had declined by approximately 9.6%, alongside growth in the number of senior executives employed in the United States, a trend that may indicate that management and decision-making centers are gradually shifting away from Israel.
When a company’s leadership is based in New York or San Francisco, or its headquarters is incorporated in Delaware, questions arise as to what makes it an “Israeli company.” It has implications for where tax revenues accrue, where talent gravitates and how much economic sovereignty the country retains over its own flagship industry.
“The report’s findings show that Israeli high-tech continues to demonstrate exceptional strength and resilience, while also reflecting the sector’s real challenges,” said Dror Bin, CEO of the Israel Innovation Authority. “Israeli high-tech is currently at a crossroads. On the one hand, while many countries around the world slowed down, Israel continues to build breakthrough companies, attract investment and lead at the forefront of global technology. On the other hand, part of the activity, workforce and capital is moving outside Israel.”
Bin warned that while this may not be a trend felt overnight, over time, it could erode the relative advantage upon which the Startup Nation was built.
“Our main challenge now is not only to continue generating innovation, but to ensure that this innovation continues creating value, jobs, and growth here in Israel,” he added.
The shekel problem
Israel’s high-tech sector earns primarily in dollars but pays its workforce in shekels. As the local currency has strengthened, that gap has become increasingly punishing. The report calculates that the decline in the dollar/shekel exchange rate from an average of 3.7 shekels in 2024 to 3.45 shekels in 2025 alone translated into a 21 billion-shekel reduction in high-tech output (equivalent to roughly 1.1% of Israel’s GDP).
The rate has since continued falling, toward 2.85 shekels. For startups operating on tight runways, a stronger shekel means salaries cost more in dollar terms, margins compress and the economic case for keeping R&D teams in Tel Aviv rather than Warsaw or Austin weakens and may directly contribute to local layoffs.
The engineers are leaving
For the first time in more than a decade, the number of R&D employees in Israeli high-tech actually declined. The sector lost about 3,500 R&D workers, and their share of total high-tech employment fell from 51% to 49%. This is a small decline, but symbolically falls beneath the halfway point and could signal the beginning of a long-term trend.
The Innovation Authority offers two explanations. The first is structural: AI tools are enabling engineers to do more with fewer people, reducing headcount without reducing output. The second is more geographic: Israeli companies are increasingly outsourcing their R&D departments to Eastern Europe, where developer salaries are significantly lower than in Tel Aviv. Both explanations are probably correct, but neither is particularly reassuring.
Engineering talent has always been Israel’s core competitive asset, even attracting the attention of Elon Musk, who recently called it “probably number one... in the world” at last month’s Smart Mobility Summit. Recognition like this is a reason multinational companies set up R&D centers here in the first place, why investors keep returning despite the security environment, and demonstrates how the sector “punches far above its weight” globally. Therefore, a decline in that base, for whatever reason, is worth monitoring.
“Israel’s greatest advantage has never been the size of its market or its natural resources, but rather its ability to think differently, take risks and turn breakthrough technologies into reality,” said Dr. Alon Stopel, chairman of the IIA. “The report demonstrates that the Israeli entrepreneurial spirit remains strong despite the significant macroeconomic challenges we face, from exchange-rate volatility, through maintaining profitability and employment, to the need to lead in the global AI race. Our mission now is to ensure that this advantage does not erode in a world where competition over technology, capital, and talent becomes more aggressive each year. We must continue striving to encourage economic growth through substantial investment in R&D, expanding international collaborations and strategically focusing on building large, established Israeli high-tech companies,” he said.
The GDP gap nobody mentions
The report contains one figure that received almost no attention in media coverage this week. Despite the 8.2% growth in high-tech output, there remains a 19 billion shekel ($6.6 billion) gap between the current high-tech GDP and the projected GDP level that would have been reached had the average annual growth rate recorded between 2008–2022 (6.5%) continued uninterrupted.
It doesn’t mean Israel’s tech sector is necessarily in trouble. The resilience documented in the 2026 report is genuine, and a sector generating these numbers while managing nearly three years of conflict and global capital market turbulence deserves credit. But let’s spot the signal in the noise: the records of 2025 were built, in significant part, on a handful of exceptional deals, there exists a workforce that is increasingly not in Israel and engineering numbers are, for the first time, going the wrong way.
The IIA’s framing states that the challenge is not only to continue generating innovation, but to ensure that this innovation continues creating value, jobs, and growth inside Israel. “As the economy’s primary growth engine, the State of Israel must continue placing innovation at the top of its national priorities, not only for the economy, but for the resilience and future of the country as a whole,” concluded Stopel.
