OPINION: Israel’s tech economy has rewritten its own growth model
AI efficiency and global strategic demand are reshaping how value is created and captured across the country's technology ecosystem, writes Avi Hasson, the CEO of Startup Nation Central
Two forces shaped Israel’s tech economy in 2025, and together they tell a coherent story. Within companies, artificial intelligence drove higher productivity and economic output without a parallel increase in employment. Outside those companies, strategic demand – expressed through record merger and acquisition value and sustained regional deal flow – absorbed that output at scale. These forces are not independent. They reinforce one another, and together they reveal how value is now created, scaled, and captured in Israel’s tech ecosystem.
Photo: Miri Davidovitz
The first shift is structural. In 2025, Israel’s high-tech sector expanded its contribution to national output even as employment growth levelled off. High-tech exports accounted for more than half of total exports, while GDP per employee rose despite modest headcount increases. This divergence reflects a productivity-driven phase of growth: companies generating more value through tighter execution, deeper technological integration, and faster conversion of R&D into deployable products.
Artificial intelligence played a central role in this transformation. Its impact was not confined to a single sector or product category. AI reshaped workflows, shortened development cycles, and made data and compute core operational inputs. Smaller, more specialised teams were able to deliver systems that once required far larger organisations. Across the ecosystem, these gains accumulated into measurable economic output rather than speculative promise.
This internal shift changed how Israeli companies present themselves to the market. Businesses became easier to integrate, easier to scale, and easier to absorb into global platforms. That, in turn, set the conditions for the second shift.
The second signal came from markets and strategic buyers. In 2025, Israeli tech recorded the highest total M&A value in its history, with disclosed transactions reaching $82.3 billion. Two exceptionally large acquisitions anchored the year, but even excluding them, underlying activity remained strong, extending the recovery that began in 2024. Deal volume increased, pricing normalised, and acquisition timelines shortened. Buyers were no longer shopping for optionality; they were acquiring capability.
This pattern matters. Global acquirers focused on technologies that fit directly into enterprise stacks, security architectures, and infrastructure roadmaps. Value concentrated around companies built for deployment rather than experimentation. Fewer transactions carried greater strategic weight, reflecting a market that rewards operational readiness and long-term relevance.
Geopolitics shaped where this demand emerged and how it materialised. Engagement with Gulf Cooperation Council (GCC) countries deepened under the Abraham Accords, not through headline capital flows but through sustained deal activity. In 2025, deal counts with GCC partners reached 186 transactions, the highest level since 2021. Unlike earlier surges, this activity persisted across funding cycles, signalling durable interest built through repetition and trust.
The United Arab Emirates emerged as the primary gateway for this engagement, serving as a practical corridor into broader regional markets. Activity concentrated in applied sectors aligned with regional priorities – food systems, water, industrial technologies, security, and infrastructure. These collaborations favoured pilots, co-development, and early deployment over rapid scale, reinforcing a model in which confidence precedes capital.
Taken together, these dynamics describe an ecosystem that has recalibrated its centre of gravity. AI-driven productivity reshaped how companies operate and scale, while strategic demand – global and regional – determined where that value was absorbed. Record M&A value and sustained regional engagement were not anomalies; they were market responses to companies built for integration and endurance.
This moment carries clear implications.
Technology in Israel is no longer just a growth sector; it is part of the national economic infrastructure.
It anchors exports, sustains high-value employment, and attracts demand even amid geopolitical and macroeconomic volatility. Israel’s enduring advantage lies in execution density: compact teams, deep engineering capability, and the ability to move from idea to deployment quickly and reliably.
The next phase requires alignment rather than acceleration. Compute capacity, data infrastructure, and advanced technical training should be treated as strategic assets. AI policy must connect research, infrastructure, regulation, education, and adoption across the economy. Scale-up pathways should support longer operating horizons while preserving the experimentation that fuels early innovation.
Record-breaking M&A value is not the destination; it is the signal. It indicates where global and regional markets see enduring relevance. Israel’s task now is to consolidate this position by supporting companies that integrate deeply, scale reliably, and serve as infrastructure for a more demanding world.
Avi Hasson is the CEO of Startup Nation Central, a Tel Aviv-based nonprofit organisation that promotes Israeli innovation around the world. He previously served as Israel’s chief scientist; founding chairman of the Israel Innovation Authority; and investor in Israeli technology companies.
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