Nvidia's Israeli R&D Operations Drive Billions in Global AI Networking Revenue
Israeli-developed technologies drive approximately 70% of Nvidia's networking business, which generated $32.3 billion in the first half of fiscal 2027. Nvidia's corporate tax payment in Israel reached $1.287 billion.
In March 2019, semiconductor giant Nvidia made a major move in the Israeli market by announcing the acquisition of Mellanox for approximately $6.9 billion in cash. The transaction was officially completed on April 27, 2020. Mellanox, which developed high-speed interconnect technologies for data centers, subsequently became one of Nvidia's most critical strategic assets in the data center infrastructure domain.
The acquisition held profound significance for Israel. Mellanox was one of the country's flagship technology firms, and the ecosystem built around it became a cornerstone of Nvidia's global research and development (R&D) operations in networking and communications. Alongside the integration of Mellanox, Nvidia has significantly expanded its R&D footprint in Israel over recent years.
Exponential Growth in Networking Revenues
Until the 2026 fiscal year, Nvidia reported its data center revenues under two primary segments: Compute and Networking. The Networking business includes communication chips, switches, interconnect systems, and high-speed data transfer technologies. A substantial portion of the R&D and technology in this segment is anchored in Nvidia's Israeli development centers, largely originating from Mellanox.
The scale of the Networking business has grown rapidly:
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In fiscal year 2024, Nvidia's Networking revenue stood at $8.57 billion.
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In fiscal year 2025, it rose to $13.00 billion.
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In fiscal year 2026 (ended January 2026), Networking revenue surged by 140% to reach $31.38 billion.
Starting in the first quarter of fiscal year 2027, Nvidia modified its financial reporting structure to focus on customer types, making it harder to isolate networking revenues in primary reports. However, the company provided segment breakdowns for the first two quarters of fiscal 2027.
In the first quarter, data center Compute revenue was $60.4 billion, while Networking revenue reached $14.8 billion. During the second-quarter earnings call, Nvidia reported that Networking revenue grew by 18% sequentially to $17.5 billion. Consequently, in the first half of fiscal year 2027, Networking revenue reached $32.3 billion—already surpassing the total annual revenue of the segment for fiscal year 2026. It is highly probable that Networking revenues for the full fiscal year 2027 will more than double compared to the previous year.
Estimating the Israeli Contribution and Export Impact
Industry estimates suggest that approximately 70% of Nvidia's networking business relies on technologies developed by Mellanox and Nvidia's R&D centers in Israel. Since Nvidia does not publish revenue breakdowns by country, this remains an estimate. Based on this projection, the contribution of Israeli operations to Nvidia's revenue in calendar year 2025 was approximately $20 billion, with expectations to exceed $40 billion in the current year.
However, Nvidia's revenues from Israeli-developed products do not equate directly to local value-added or Israeli exports. Manufacturing, assembly, and packaging of Nvidia's products occur outside of Israel, meaning the full sales volume is not recorded as Israeli exports.
In the publications of the Israel Central Bureau of Statistics (CBS), there is a specific category for "goods sold abroad that do not cross the national borders," used to reconcile foreign trade data with balance of payments definitions. This figure has shown unusual growth:
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2021: $5.834 billion
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2022: $7.312 billion
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2023: $9.781 billion
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2024: $9.276 billion
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2025: $16.122 billion
The sharp spike in 2025 coincided with the surge in Nvidia's Networking sales, suggesting a strong correlation. Given the scale of Nvidia's operations in Israel, there is a growing need for the CBS to clarify how such activities are accounted for in national export statistics.
Tax Contributions and Strategic Alignment
In its full annual report for fiscal year 2026, Nvidia disclosed for the first time that its corporate tax payment in Israel reached $1.287 billion, most of which was paid during calendar year 2025. Given the projected growth in sales, Nvidia's tax payments in Israel for the current calendar year are expected to double.
Nvidia has become the multinational corporation with the most significant economic impact on Israel. Employing thousands of local engineers and researchers in chip design, AI, and software, the company anchors Israel at the forefront of the global AI revolution. However, this also ties a significant portion of Israel's macroeconomic outlook to Nvidia's continued global dominance in AI infrastructure.
