Israel - Market Insights

Israel’s economy in 2025: M&A recovery, AI exits and a cautious outlook for 2026

2025 marked a turning point for Israel’s economy, with a ceasefire-driven recovery, record M&A activity and renewed global interest in Israeli technology — particularly in AI and cybersecurity. As Israel enters 2026, dealmakers face a mix of cautious optimism and geopolitical uncertainty.

A pivot year for Israel’s economy

2025 will perhaps be best remembered as a pivot year for Israel and the Israeli economy. After two years of conflict, Israel reached a ceasefire arrangement in the Gaza Strip and military activities were scaled back, releasing thousands of reservists from service and signaling a possible end to hostilities in the near term. In parallel, Israel’s economy had a standout year, with the shekel strengthening significantly, the Tel Aviv Stock Exchange outperforming its peers and buoyant M&A activity.

Record-breaking M&A and the Wiz–Google deal

According to the PwC M&A report for 2025, the value of exits (M&A and Initial Public Offerings (IPOs)) increased by an enormous 340% from USD 13.4 billion in 2024 to USD 58.8 billion in 2025. This increase was in part due to the huge acquisition of Wiz by Google for USD 32 billion, the largest ever deal involving an Israeli-founded company. Excluding the Wiz deal, exit activity in the Israeli M&A market still doubled — an impressive feat given the geopolitical backdrop.

Geopolitics, new trade partners and energy exports

Indeed, the shifting sands of geopolitics have played and will continue to play an important role in Israel’s economic fortunes. While relationships with some of Israel’s traditional allies have been tested, new avenues for trade are opening up. 2025 saw Kazakhstan enter the Abraham Accords as well as the signing of a new bilateral investment agreement between Israel and India. Meanwhile, Israel entered into a historic USD 35 billion deal with Egypt for the export of Israeli natural gas to its southern neighbor.

AI, cybersecurity and early-stage exits

While Israel’s relationships in the wider region and beyond are likely to remain unpredictable in the months and years to come, one thing is likely to remain — Israel’s technology offering, and defense and defense-tech capabilities will continue to draw interest from international players.

Perhaps nowhere is this felt more acutely than in the space of AI, where international corporates are under increasing pressure to quickly build teams at the forefront of this space. One of the most notable trends in Israel’s impressive M&A data for 2025 is the prevalence of Israeli AI companies in very early stages being sold, sometimes only after a year or two of being founded (for example, Prompt Security, Axis and Figma) as well as AI companies at the intersection between AI, defense and cybersecurity (for example, Carbyne, Armis and AIM Security).

Nvidia’s investment and Israel as an AI hub

A further vote of confidence in the Israeli economy came during 2025 when Nvidia — the global AI giant and serial acquirer of Israeli companies — announced plans to build its megacampus in the north of Israel and double its workforce in the country to 10,000 employees. This continued investment in Israel’s longstanding excellence in hardware powering AI — together with SaaS (Software as a Service) and cybersecurity companies operating further down the value chain — positions Israel as an end-to-end AI innovation hub.

Signs of recovery in the public markets

One of the most promising signs of recovery came in the public markets, with 2025 witnessing a nascent recovery in Israeli companies listing in the United States. Notable listings included Via (smart mobility), eToro (trading) and Navan (travel tech). These IPOs mark an important signal of intent after years of relatively few Israeli listings in the United States.

Tax and regulatory reforms: will they be enough?

As 2025 ended, the Israeli Ministry of Finance and Israeli Tax Authority announced a raft of reforms aimed at strengthening the tech sector. This is, in part, a nod to the importance of the sector to the wider economy but also a tacit recognition of the fact that the conflict has taken its toll — both in terms of attracting foreign investment but also the “brain drain” of tech talent away from Israel over the past few years. The reforms include reliefs for investors in venture capital and hedge funds, greater certainty for multinationals operating in Israel and tax exemptions for Israelis returning to live in Israel after having relocated overseas. It remains to be seen if and when such measures will be legislated.

Looking ahead to 2026: optimism meets uncertainty

Given the globally connected nature of the Israeli economy, global trends tend to serve as an early indicator for Israel, with similar trends emerging six or 12 months down the line. Looking ahead, the buoyant state of M&A across the world in 2025 serves as a positive omen for Israel’s tech sector and, by extension, the wider economy.

All of this means that Israeli dealmakers feel a sense of cautious optimism at the start of 2026. Analysts also seem to share this view with a recent credit upgrade from Standard & Poor’s, and Goldman Sachs recently predicting 5.4% GDP growth for the Israeli economy as part of a “big recovery”.

The only question that remains is whether other geopolitical and local events might yet stand in the way of Israel’s impressive economic recovery. Any resumption in the conflict on Israel’s northern or southern borders (or with Iran) is likely to derail the recovery. However, geopolitical risks have become a global phenomenon in recent years, and in that sense, many other jurisdictions bear a similar risk to that of Israel. Meanwhile, 2026 will also witness a national Israeli election — the first since the horrific attacks of October 7, 2023 — and a potential powder keg due to the highly sensitive and fraught political environment in the country.

In short, Israel enters 2026 with strong economic fundamentals, renewed deal momentum and global interest in its tech sector — tempered by political risk and regional instability. Thinking of this, the opening line in Charles Dickens' epic novel A Tale of Two Cities comes to mind: “It was the worst of times, it was the best of times, it was the age of wisdom, it was the age of foolishness”. Israel and its economy truly stand at the crossroads. Only time will tell how 2026 will pan out.