Israel's flourishing tech ecosystem, ranked second globally outside of Silicon Valley, faces mounting security challenges as the nation grapples with an escalating conflict with Hamas, Euronews reports.
The Israeli military's shift to a war footing, potentially involving a full-scale invasion of the Gaza Strip, has sent shockwaves through the high-tech industry, which contributes a fifth of the country's GDP.
With rocket attacks reaching Tel Aviv and a surge in violence, the sector that accounts for 14% of jobs and almost a fifth of GDP is bracing for disruption.
Israeli Tech Stocks Plunge as Conflict Flares
High-tech industries in Israel have been the fastest-growing sector for decades, but the latest surge in violence has sent shockwaves through the sector.
The impact of the conflict reverberated in the stock market, with U.S. tech shares, including those of companies with substantial operations in Israel, seeing declines.
Reuters reports that chipmaker Intel, Israel's largest private employer and exporter, is closely monitoring the situation and taking steps to safeguard its workers.
However, it remains uncertain if chip production has been affected, as Intel's shares experienced a 0.5% drop on Monday.
Jack Ablin, Chief Investment Officer and Founding Partner at Cresset Wealth Advisors summed up the situation, saying, "It is a huge disruption to business as usual."
He emphasized the potential diversion of resources if the conflict escalates further, including tech company staff being called up as military reservists.
Israel's response to the crisis has been unprecedented, with plans to call up 300,000 reservists, many of whom could be sourced from U.S.-based tech operations.
Effects on Tech Companies
Nvidia, the world's leading maker of chips for artificial intelligence and computer graphics, had to cancel an AI summit scheduled for Tel Aviv, where CEO Jensen Huang was slated to speak.
Israel-based Tower Semiconductor, known for providing analog and mixed-signal semiconductors mainly for the automotive and consumer industries, continued its operations, albeit with a 4.9% drop in its New York-listed shares.
Despite the disruptions caused by the conflict, tech giants such as Meta Platforms, Alphabet, Apple, and Microsoft have remained tight-lipped, declining to comment on the situation.
Israel's technology sector had already faced headwinds in 2023 due to internal political conflict and protests. A growing number of Israeli tech startups have flocked to the United States, seeking stability amid domestic unrest.
Currently, 500 multinationals operate in Israel, mainly focusing on research and development centers after acquiring Israeli startups. These include industry giants like Intel, IBM, Apple, Microsoft, Google, and Facebook.
What's Next?
Prime Minister Benjamin Netanyahu had previously announced Intel's ambitious plan to invest $25 billion in a new factory in Kiryat Gat, roughly 26 miles from Gaza.
Looking ahead, the tech and AI sector in Israel, known for its innovation and excellence, could experience increased investment due to its strategic connection to military spending.
Quincy Krosby, Chief Global Strategist at LPL Financial in Charlotte, North Carolina, suggested that investments in AI could see growth as countries prioritize reinforcing their security systems.
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