Israeli high-tech is missing 18,000 jobs as investment concentrates in AI and cyber
The sector employed about 400,000 people in 2025, fewer than expected had pre-pandemic employment growth continued. A new study also finds that investment is increasingly flowing to established companies and a narrower range of technological fields.
Israeli high-tech is raising more money per funding round, but the recovery is increasingly concentrated in a smaller number of companies and sectors. In the first half of 2026, the average deal reached $39.3 million. Meanwhile, the sector employed about 18,000 fewer people in 2025 than expected under its pre-pandemic growth trajectory, and a growing share of its workforce is based abroad.
The findings, published in a new policy paper by the Phoenix Capital Market Research Institute at Reichman University, point to a widening gap between the financial strength of Israeli high-tech and its broader contribution to employment and economic activity within the country. Investment is increasingly concentrated in artificial intelligence and cybersecurity, while the local stock market reflects only part of the changes taking place across the industry.
In 2025, Israel’s high-tech sector employed approximately 400,000 people, about 18,000 fewer, or 4.5%, than would have been expected had the pre-pandemic growth rate continued. The share of employees based in Israel among the total workforce of privately held Israeli high-tech companies also declined, from approximately 69% in 2019 to about 62% in 2026. The decline extends to research and development (R&D), suggesting that companies are expanding their operations abroad even in core technological activities.
The funding figures reveal a similar shift. In the first half of 2026, the average amount raised per deal reached approximately $39.3 million, the highest level during the period examined. However, the total number of deals remained low compared with peak years. Initial investments by venture capital funds accounted for just 35.5% of all deals, meaning that approximately 65% involved follow-on investments in companies that had already secured funding.
According to the researchers, the trend could gradually narrow the pool of new companies from which the next generation of Israeli high-tech businesses emerges. While established companies continue to attract capital, fewer initial investments may leave less room for new ventures to secure the funding needed to grow.
Investment has also become increasingly concentrated in AI and cybersecurity. Over three years, the share of “Core AI” companies in total capital raised rose from approximately 12.7% to 35.2%, while investment in these companies increased from about $2 billion to $5.1 billion. Cybersecurity’s share of capital raised climbed from roughly 15% in 2016 to 44% in 2025. Together, the figures point to a growing concentration of investment in a limited number of technological fields.
The study also found that the composition of the TA-Technology Index differs from the investment patterns seen among private high-tech companies. The correlation between the performance of technology stocks and growth in the high-tech sector’s output has weakened significantly in recent years. Since 2023, domestic factors have also played an increasingly important role in the pricing of Israeli technology stocks, alongside global trends.
CPA Itay Kedmi, head of financial analysis at the Phoenix Capital Market Research Institute at Reichman University, said: “The Israeli high-tech sector continues to demonstrate strength and attract substantial investment; however, the recovery is not as broad-based as it might appear. Capital is becoming increasingly concentrated within a smaller number of companies, a growing share of activity is taking place outside of Israel, and employment levels have not returned to their previous growth trajectory. The challenge lies in ensuring that the success of major companies translates into the growth of new firms, the creation of jobs within Israel, and a stronger connection between the high-tech industry and the local capital market.”
