After AI21 layoffs, Nebius emerges as home for remaining engineers
Sources say the cloud infrastructure company is paying tens of millions of dollars in an acquihire-style arrangement centered on AI21’s surviving AI technology.
How dire is the situation at AI21? In a message sent on Monday announcing the layoff of most of its employees, the company highlighted a recent collaboration with Israeli website-building company Wix in an apparent attempt to project “business as usual.” But Wix itself is hardly viewed as a company leading the AI race. On the contrary, it faces mounting pressure from the AI revolution, reflected in a market value that has fallen by nearly 50% since the start of the year to approximately $2.3 billion.
AI21 was once considered Israel’s great hope in the critical arena of large language models (LLMs). Yet yesterday’s announcement that it would lay off 110 of its 180 employees amounted to a public acknowledgment of failure. The company has effectively shut down nearly all of its product lines and is left with around 70 employees, most of them developers. Employees in nearly every other function were informed on Monday morning that they were being let go.
Calcalist has learned that, despite AI21’s denials, a significant portion of the engineering team is expected to move to computer infrastructure company Nebius, which had previously been mentioned as a potential acquirer. Contrary to expectations that AI21 might be sold for billions of dollars to Nebius, Nvidia, or Google, discussions over the past year ultimately resulted in what appears to be an acquihire-style arrangement focused primarily on the employees.
According to sources familiar with the matter, Nebius is paying AI21 tens of millions of dollars for the team, which is also expected to relocate to Nebius’ offices at the Acro Tower on Yitzhak Sadeh Street in Tel Aviv. Nebius recently moved into the building and is already searching for additional office space there.
AI21 denies that the company itself has been sold, though it acknowledges uncertainty about whether it will remain in its current offices on Leonardo da Vinci Street in Tel Aviv. The company occupies a relatively large floor there, leased when its workforce peaked at around 250 employees.
AI21 confirmed that talks had indeed taken place regarding either an investment or a sale to Nebius, but insisted that the final structure was a commercial partnership agreement under which Nebius will integrate AI21’s AI-agent platform, Maestro, into its cloud services. In a statement released yesterday, AI21 said it had signed contracts worth tens of millions of dollars with major international customers that will deploy the Maestro system, including Nebius.
Maestro is now effectively AI21’s only remaining active product line. The company announced that it would halt development of its Jamba family of language models. Earlier, in April 2025, it discontinued development of Wordtune, its AI-powered writing assistant and automated email response tool. The gradual retrenchment at AI21 effectively began with the shutdown of Wordtune, marking the first visible sign of deeper troubles. Around the same time, a growing number of senior AI researchers and executives also began leaving the company for new startups.
Founded in 2017 by Amnon Shashua, Yoav Shoham, and Ori Goshen, AI21 once appeared positioned to compete not only with OpenAI and Anthropic, but also with second-tier rivals such as Cohere and Mistral AI. All were founded around roughly the same period, though not all were American.
AI21 also boasted an elite roster of founders and investors. Shashua founded Mobileye, OrCam, and Mentee Robotics, while Shoham is one of the most respected figures in AI academia, having served as a senior scientist at Google and a professor at Stanford University. Shoham and Goshen serve as co-CEOs, while Shashua remains chairman. Investors include Nvidia, Google, Intel, Samsung Next, 8VC, Coatue, and Israeli venture capital fund Pitango First.
AI21 was supposed to put Israel firmly on the global LLM map. So what went wrong?
Questions first emerged in 2024, at the height of the generative AI boom triggered by the launch of ChatGPT. Capital poured into nearly every company connected to AI. AI21 itself raised $200 million in 2023 at a valuation of $1.4 billion, becoming a unicorn. But since then, it has failed to complete another major funding round, even as competitors continued to attract enormous sums.
Mistral has since raised roughly $300 million and reached a valuation of about $14 billion. Cohere, which similarly focused on enterprise AI rather than consumer products, has raised more than $2 billion and was last valued at $7 billion.
The fact that AI21, operating at the forefront of AI models, failed to capitalize on the investment frenzy raised eyebrows across the industry. The company attributed some of the difficulty to the war in Israel and maintained that it had sufficient cash reserves. Still, reports surfaced last year that AI21 was attempting to raise $300 million from Google and Nvidia, funding that ultimately never materialized.
At the time, the company said discussions that began as investment talks had evolved into acquisition discussions, causing delays. That explanation only deepened concerns that AI21 was not advancing at the pace expected of a company operating in the hottest sector in technology.
Meanwhile, competitors secured partnerships with virtually every major AI infrastructure player, from Nvidia and Amazon to Microsoft and Oracle, while AI21 struggled to gain similar traction.
The company argued that its strategy differed fundamentally from rivals pursuing “one-size-fits-all” AI models. Instead, it sought to build specialized AI systems for industries requiring high levels of reliability and fewer hallucinations. The thesis may have had merit, but critics say it reflected Shashua’s broader tendency to try to educate the market rather than adapt to it, an approach also associated with Mobileye and autonomous driving.
One indication that confidence in AI21 may have been fading internally came in late 2023, when Shashua co-founded a separate AI company, AAI, alongside a group of researchers. Operating quietly at first, AAI reportedly achieved unicorn status last year. While Shashua remains chairman of AI21, he has distanced himself from its day-to-day operations and focused increasingly on his new venture.
Ultimately, AI21 may not have lacked technological capabilities. But unlike more focused competitors, it spread itself across multiple business lines simultaneously, including consumer-facing products such as Wordtune. Competing against global AI giants requires massive investment in computing infrastructure, while competing against mid-sized rivals is difficult for a company operating from a relatively small market.
Industry estimates suggest AI21’s annual revenue remained below $50 million for several years, while Mistral and Cohere reportedly reached annualized revenue run rates of approximately $400 million and $200 million, respectively.
At the same time, AI21 maintained a relatively expensive operating structure, preparing for a breakout moment that never arrived. The realization that the company had missed its opportunity appears to have pushed shareholders toward seeking a sale over the past year, reportedly at valuations between $2 billion and $3 billion, levels that prospective buyers were unwilling to meet.
Like many companies swept up in the AI frenzy, AI21 is now returning to the profile of a much smaller startup: leaner, with lower revenue, and facing a long development road ahead.
“This has been building for a long time,” people close to the company said. “Two years ago there was already an understanding that LLMs have limitations and that the future would move toward AI agents. But this infrastructure is still being defined, so the company’s focus is shifting back toward pure technology development, with less need for marketing and sales.”
Still, given AI21’s long-standing reputation for opacity, it remains unclear whether the company will truly continue independently, or effectively become an AI development arm for Nebius as it seeks to strengthen its cloud platform.
