Investors and analysts expect Israeli IT businesses to beef up security as a result of Hamas gunmen from Gaza killing hundreds of Israelis and kidnapping an unknown number of others.
High-tech industries have been the fastest expanding and most important industry in Israel for several decades, accounting for 14% of jobs and about a fifth of GDP.
After gunmen from the Palestinian organization Hamas rampaged through Israeli cities on Saturday, terrorists also fired thousands of rockets into Israel in a surprise attack, Israeli stock, and bond prices fell and many businesses were shuttered on Sunday.
Israeli tech industry faces challenges amid escalating conflict
Some rockets reached Tel Aviv, forcing airlines to cancel flights to and from Israel.
Israel reacted with air strikes on Hamas targets in Gaza, killing hundreds.
“It’s a huge disruption to business as usual,” said Jack Ablin, Cresset Wealth Advisors’ chief investment officer and founding partner. In the short term, he warned, resources might be diverted if the conflict escalates, such as tech workers being called up as military reservists.
Because some technology expenditure is related to the military, Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina, believes there will be a “tremendous effort” to protect physical locations for corporations operating in Israel against assaults.
Intel Corp, Israel’s largest private employer and exporter, said on Sunday that the business was “closely monitoring the situation in Israel and taking steps to safeguard and support our workers.” The representative declined to comment on whether the issue has had an impact on chip production.
Nvidia, the world’s leading maker of artificial intelligence and computer graphics chips, announced the cancellation of an AI summit slated for Tel Aviv next week, where its CEO Jensen Huang was scheduled to appear.
Tower Semiconductor, based in Israel, said it was continuing to serve customers with analog and mixed-signal semiconductors, primarily for the automotive and consumer industries.
Other technology behemoths, including Meta Platforms, Alphabet, and Apple, did not respond to calls for comment. Microsoft did not respond to a request for comment.
In 2023, Israel’s technological sector was already slowing, compounded by internal political strife and riots. An increasing number of Israeli tech businesses have established themselves in the United States.
Spending on military and AI is up
The Israeli tech industry dates back to 1974 when Intel established a presence, but the start-up scene took up in the 1990s, establishing Israel as the world’s second-largest tech center outside of Silicon Valley, with hundreds of companies and a major ecosystem.
From Intel to IBM, Apple, Microsoft, Google, and Facebook, there are now 500 global corporations working in Israel, mostly as research and development centers after purchasing Israeli start-ups.
In June, Prime Minister Benjamin Netanyahu said that Intel planned to invest $25 billion in a new factory in in the southern city of Kiryat Gat some 42 km (26 miles) from Gaza.
He dubbed it the largest-ever overseas investment in the country, due to open in 2027, and said it will add to the country’s chip facilities and design centers.
In the long term, the tech and AI sectors, in which Israel has been a leader, might see more investment due to the industries’ close relationship with military spending, according to LPL’s Krosby.
“They will probably increase the investment in AI,” Krosby said. “When a country is caught literally off guard the first thing they look at – besides the obvious problems with intelligence – is what was missed within the security systems.”
“It could bolster support for more financial resources for tech for the military, which then ultimately transitions to the private sector tech companies,” Krosby added.
In the past, the IT sector has demonstrated resiliency, overcoming a series of clashes with Hamas in Gaza.
The Israeli IT sector, according to Apjit Walia, Managing Director at DVN Capital, “has historically bounced back from geopolitical tragedies.”