The Nvidia question: How one company is rewriting Israel’s economic story
Economists warn that headline growth and tax data may overstate the strength of the wider economy.
How is it possible that the Israeli economy has been at war for almost three years, many businesses are still struggling to return to full activity, private consumption is recovering slowly, and only about a tenth of employees work in high-tech, and yet growth is surprising on the upside, state tax revenues are repeatedly exceeding forecasts, and the deficit has been falling faster than expected for eight consecutive months?
The answer may lie with one company: Nvidia, the world’s most valuable company, which has a significant presence in Israel.
Last week, Meitav chief economist Alex Zabezhinsky published an unusual review arguing that Israel’s growth figures are “less representative of the state of the economy,” because they are heavily influenced by the activity of a single company, or a very small number of firms. The day before yesterday, Leader chief economist Jonathan Katz reached a similar conclusion in his weekly review.
According to Katz, the activity of Mellanox, Nvidia’s Israeli subsidiary, explains a large share of the surprise tax revenues, puts upward pressure on the shekel, and even allows the government to raise less debt than planned. When two of the most prominent macroeconomists highlight the same phenomenon within a week, it is no longer an anecdote but a macroeconomic signal that warrants attention.
1.
The numbers are indeed extraordinary. According to Katz, exports of goods that do not physically cross Israel’s borders, an activity mainly associated with Mellanox, reached nearly $10 billion in 2025, and in the first quarter of 2026 were already approaching an annualized rate of about $20 billion.
He estimates that this activity alone contributed at least $1.5 billion to state tax revenues and helped lift the government’s revenue forecast by about NIS 7 billion ($2.3 billion).
Zabezhinsky presents similarly striking figures. In his estimate, without this exceptional activity, Israel’s growth in 2025 would have been only 1.6% instead of 2.9%, and in the first quarter of 2026 the economy would have contracted by 10.5% instead of shrinking by 3.8%.
In other words, a large part of the economy’s apparent strength in the past year stems from the global activity of one company, or at most a handful of companies.
Nvidia does not manufacture chips in Israel; production takes place abroad. However, Mellanox’s development, management, and intellectual property centers are registered in Israel, meaning the value added is recorded as Israeli export activity, even if the physical goods do not cross the country’s borders.
From here begins an entire economic chain: exports rise, GDP increases, corporate profits expand, the state collects more taxes, the deficit narrows, borrowing needs decline, and upward pressure builds on the shekel.
It is important to stress: this is not statistical manipulation. It reflects standard national accounting rules used by the International Monetary Fund (IMF) and applied globally.
But it raises a deeper question: do these figures still accurately describe the underlying state of the Israeli economy?
2.
The key macroeconomic question is simple: what is the problem with this?
The answer, according to economic literature, is clear, but uncomfortable.
The first problem is the creation of a “macro illusion.” When the government sees strong growth, unexpectedly high tax revenues, and a rapidly narrowing deficit, it is easy to conclude that the entire economy is performing strongly, as Finance Minister Bezalel Smotrich has repeatedly argued.
Yet it is possible that most sectors are recovering far more slowly. Only about 10% of employees work in high-tech, and an even smaller share is directly tied to Nvidia or benefits from its success. If one company is pulling up the average, it may mask weakness elsewhere.
The second risk is fiscal misjudgment. State revenues have surged, contributing significantly to the decline in the deficit. But if part of this increase stems from an extraordinary cycle in the artificial intelligence industry, or the performance of a single company, it cannot be assumed to persist.
If the government converts temporary windfalls into permanent spending commitments, it may later face a shortfall while liabilities remain.
This is not theoretical. Last week, Smotrich highlighted the declining deficit, even as spending and debt continue to rise, and despite deficits remaining above 5% for three consecutive years.
3.
The third risk is macroeconomic concentration. Economic history contains numerous examples.
Finland’s economy was once heavily dependent on Nokia, which at its peak accounted for a significant share of exports, growth, and R&D investment. When Nokia collapsed in the early 2010s, the Finnish economy entered a prolonged slowdown.
South Korea continues to grapple with Samsung’s dominant role in exports, while Taiwan faces similar concentration concerns around TSMC.
In all these cases, the success of a dominant firm is both a major asset and a structural risk.
The fourth issue is measurement distortion. When a single company is large enough, averages become less representative. This phenomenon is also visible in recent years in U.S. equity markets, where index gains have been driven largely by the “Magnificent Seven,” while many other companies have delivered far more modest performance.
In Israel, macroeconomic data may likewise mask the reality experienced by small businesses, manufacturers, retailers, and service providers.
There is also a broader vulnerability: the more an economy depends on a small number of global companies, the more exposed it becomes to forces beyond its control, corporate decisions made abroad, changes in international taxation, trade conflicts, technological shifts, or a slowdown in the global AI cycle.
Any such development could affect not only Nvidia’s valuation, but also Israel’s growth, tax revenues, and fiscal position.
None of this is a critique of Nvidia. On the contrary, Israel has every incentive to have more companies like it. Nvidia’s success is a major achievement of Israeli high-tech and of the broader economy.
The issue arises when one company becomes so influential that it reshapes how national macroeconomic data is interpreted.
And that is the central question emerging from these recent analyses: are Israel’s economic indicators still telling the story of the entire economy, or increasingly the story of one extraordinary company?
