Israeli Tech Enters a New Growth Model

The year 2025 marked a profound turning point for Israel’s technology ecosystem. More than a simple rebound after the turbulence of 2023–2024, the figures from the Startup Nation Finder annual report reveal a structural transformation: growth is no longer driven by an abundance of capital or workforce expansion, but by productivity, technological integration, and execution. With more than $111 billion in transactions, Israel’s ecosystem significantly outperformed 2024 and even surpassed its 2021 levels. Behind these headline numbers lies a more strategic reality: Israel has entered a phase of industrial maturity.

High tech now accounts for 56% of Israel’s total exports, up from 52% in 2023. Even more striking, GDP contribution per employee increased by 1.4%, despite a slight decline in high-tech employment (-0.7%). Export value per employee rose by approximately 3%, nearly double the increase recorded the previous year.

In other words, Israel’s growth is now driven by efficiency rather than scale.

AI is transforming the structure of companies themselves

Artificial intelligence, long viewed as a promise of future value, has become an operational infrastructure at the core of companies. In 2025, AI’s impact in Israel is primarily organizational. It compresses development cycles, automates large portions of software work, and enables small, highly specialized teams to deliver solutions once reserved for much larger organizations.

This shift explains the ecosystem’s strong vertical specialization: 76% of Israeli AI companies are focused on specific verticals, and nearly half are AI-first companies developing dedicated industry applications.

While horizontal platforms represent only 15% of AI companies, they capture more than half of AI funding and M&A value, underscoring their strategic role within global technology architectures. Conversely, vertical players are increasingly demonstrating their ability to generate targeted value, capturing 27% of AI funding despite their more modest scale.

This technological transition is accompanied by a profound shift in the labor market. Israeli tech companies are now optimizing what the report defines as “execution density”: fewer peripheral roles, and more positions directly tied to converting research into products and products into revenue.

Hiring increased by 11% in Product, QA, and Data roles, while business and administrative positions declined by 10%. R&D remains central, accounting for nearly half of the workforce, with moderate but steady growth.

Cybersecurity, defense, and fintech stand out in particular, driven by a continuous improvement trend observed since the second quarter of 2024. This resilience fuels international investor confidence and reinforces Israel’s strategic attractiveness in an increasingly uncertain global environment.

The Abraham Accords enter an operational phase

Regional engagement is also evolving. In 2025, relationships forged under the Abraham Accords are moving beyond symbolism to become operational. Investments linked to the MENA region reached $186 million, their highest level since 2021.

While these flows remain relatively modest, they are characterized by repeat participation: a small group of investors accounts for more than half of all activity, primarily through early-stage rounds and pilot projects. The United Arab Emirates has emerged as the region’s primary gateway, with strong interest in agritech, foodtech, cybersecurity, and industrial technologies.

Finally, beyond the headline-grabbing mega acquisitions, the M&A market is normalizing. Most transactions now involve earlier-stage exits, driven by capability acquisition and technology integration rather than sheer scale. While Israeli acquirers completed 38% of transactions, the vast majority of value was captured by foreign buyers, confirming the enduring international appeal of Israeli technology.

Caroline Haïat