Israeli High-Tech Faces Centralization and Overseas Shift, Study Shows
A Reichman University study reveals Israeli high-tech is growing centralized, with R&D moving abroad, employment lagging, and capital concentrating heavily in AI and cybersecurity.
A new policy paper from the Phoenix Holdings Capital Market Research Institute at Reichman University reveals significant structural shifts in the Israeli high-tech sector. Despite an overall recovery in GDP and capital raising, the industry is becoming increasingly centralized, employment growth is lagging, and a growing share of corporate activity is moving abroad.
Employment Shifts and Globalization of R&D
In 2025, approximately 400,000 employees worked in Israeli high-tech, representing about 18,000 fewer workers (4.5%) than projected had pre-pandemic growth rates continued. Furthermore, the proportion of employees based in Israel out of all workers in private Israeli high-tech companies dropped from 69% in 2019 to 62% in 2026. This decline is particularly noticeable in research and development, signaling an expansion of core technological activities overseas.
Capital Concentration and the Rise of Artificial Intelligence
During the first half of 2026, the average funding per deal reached $39.3 million, the highest level recorded in the study, while the total number of transactions remained low compared to peak years. Simultaneously, initial venture capital investments fell to 35.5% of all investment deals, meaning roughly 65% of transactions were directed toward follow-on funding for established companies. Researchers warn this trend could narrow the pipeline of new startups.
"Israeli high-tech continues to demonstrate strength and attract significant investment, but the recovery is not as broad as it appears. More capital is concentrated in fewer companies, a growing share of activity takes place outside Israel, and employment is not returning to its previous growth trajectory," said CPA Itay Kedmi, Head of Financial Analysis at the institute.
In just three years, the share of Core AI companies in capital fundraising surged from 12.7% to 35.2%, with total investments jumping from $2 billion to $5.1 billion. Meanwhile, cybersecurity's share of funding climbed from 15% in 2016 to 44% in 2025, underscoring extreme market concentration.
