Published by Forbes Business Council

After more than a year of war and a global tech slowdown, Israel’s technology sector is zooming ahead. Despite the country’s struggles, a closer look reveals that the country has advantages in several deep tech sectors.

The capital raised by tech firms in 2024 was up 38% compared to 2023. Being the managing partner at an investment firm based in Israel, I’m seeing that for some investors, Israel’s continued reliance on innovation for its own future and security, combined with a changing Middle East, could make this an especially suitable time to take another look at the “Startup Nation.”

A New Middle East And The Israeli Advantage

One bright spot with growing implications is increased trade with Middle Eastern and African countries, such as Egypt, Morocco and Bahrain. With the United Arab Emirates, bilateral trade was expected to hit $3.3 billion in 2024. Trade could be set for a bigger boost with the Trump administration’s interest in expanding the 2020 Abraham Accords, which established official economic and diplomatic relations among Israel, the UAE, Morocco and Bahrain.

Greater Israeli economic cooperation with Saudi Arabia is already underway, even without a formalized relationship. According to Globes, a Saudi sovereign wealth fund has “disclosed extensive investment” in Israeli tech firms, and with the change in U.S. administration, some believe more opportunities for investment could arise.

I believe the ability of Israel’s tech sector to attract more than $12 billion in total investments in 2024—up 31% from 2023—and the country’s growing trade with Arab countries comes from the country’s deep well of technical expertise combined with the fact that Israel actively uses this asset to solve real-world problems. As Israel’s potential trading partners grow, and the world increasingly needs solutions for sustainable energy, food security and cyber and defense challenges, the country is increasingly worthwhile for investors to explore.

Defense Technology

One area those interested in Israel may explore is the defense sector. With global defense spending increasing and modern warfare, defense and security rapidly evolving, it is a lucrative time for the sector.

At the same time, and perhaps even more importantly for investors, defense technology also holds promise for peacetime, as technology developed for military use is being developed for consumer purposes, including devices for smart homes; advanced AI chips; and technology for autonomous cars, drones and space exploration. This overlap and extension into other sectors could ensure ongoing demand and growth regardless of geopolitical events. In this world of dual-use technology, Israel might stand out due to its reliance on technology for daily defense needs, real-world proof of concept and faster adoption of solutions in other sectors.

Cybersecurity

Israel has a storied history as a leader in cybersecurity with a track record that can be partly credited to substantial government investment in the field’s early days. I believe the cyber sector is now set to continue to grow as more of life moves not just online but also becomes AI-assisted.

This sector in Israel saw significant growth in 2024, with firms raising $4 billion last year. Wiz, a U.S.-Israeli cybersecurity company, raised $1 billion in a private funding round. Some of the country’s biggest exits were in the cyber sector, including the purchase of local data backup company Own by Salesforce for $1.9 billion.

In addition to interest from global tech companies, with the ongoing bridging effects of the Abraham Accords, I believe Israel’s cybersecurity sector is well-poised to reach more markets in the Middle East and North Africa, regions where growth is expected to be significant in the coming years.

Climate Technology

As climate change pushes the world to find urgent solutions for more sustainable energy, food and water sources, a growing number of Israeli companies are working to solve these challenges. Israel is now home to more than 300 energy tech companies, according to Startup Nation Central.

Israel has also led the way in water tech, going from a water-scarce country to one that desalinates seawater to meet the majority of its freshwater needs. Demand for solutions to water and food supply solutions is set to grow in the Middle East and beyond as climate challenges intensify.

Looking Forward

This year, I believe returns on private investments in Israel will be driven by a pipeline of new technologies. Despite ongoing security concerns, Israel’s tech sector has shown resilience. A good example is the technology industry’s merger and acquisition activity in 2024. “Including secondary sales of public companies, the total value of M&A deals exceeded $17 billion,” according to CTech.

A survey of Israeli VC investors and investment banks (via Globes) suggests we could see a recovery in the IPO market this year. I expect a rebound in the world economy, along with contingent stabilizing interest rates and improved investor confidence, could drive the reopening of IPO opportunities. Mature companies could see more favorable conditions in 2025 due to stability and market recovery, as these appeal to investors seeking proven models and strategic exits.

For investors considering the country, one straightforward way to get involved in the Israeli investment scene is to develop an investment strategy that initially focuses on funds. This can enable investors to get initial exposure and develop familiarity with Israel’s investment landscape.

Israel’s technology sector has attracted considerable interest from foreign investors. Globes reported that investments in Israeli AI companies, as a share of total investments, increased from 26% in 2023 to 41% in 2024. From established fields like cybersecurity to emerging innovations like AI, Israeli tech presents a number of investment opportunities. Ultimately, Israel remains open for business and may be an attractive destination for some investors.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.