How war, and Silicon Valley, are driving an Israeli tech rebound

Politico

9 hours ago

With help from Aaron Mak
It wasn't long ago that Israel's tech sector saw a drop in both confidence and global investments. After the October 7, 2023 Hamas attack and the ensuing Israeli retaliation in Gaza, foreign direct investment plummeted, and the government injected millions of dollars into the tech industry to try to lure investors.
But now, a rebound is firmly underway — led in many cases by American investment.
The California semiconductor giant Nvidia is planning a new campus of up to 30 acres in the country's north, it told DFD. Google acquired Israeli-founded cybersecurity company Wiz for $32 billion in March. Since the war began, venture capital firms Sequoia and Greylock announced they were hiring new local partners; Andreessen Horowitz also reportedly made significant new investments in Israel (the company didn't respond to DFD questions). Startup Nation Central, a nonprofit promoting Israeli innovation, found in January that Israeli tech companies raised more than $9.3 billion in the first half of 2025, which it said was the strongest six-month performance in the last three years.
Investors in Israel say the recovery is fueled by growing global interest in cybersecurity and artificial intelligence, both of which are Israeli strengths, and have now been tested on the battlefield in Gaza.
Politically, too, Israel is benefiting from more vocal support in Silicon Valley, despite global criticism of Israel's retaliatory actions. Most recently, Google co-founder Sergey Brin called the United Nations 'transparently antisemitic' after it published a report on companies, including Google, that profit from working with Israel, The Washington Post reported. (Google didn't respond to a question about Brin's comment.)
The Financial Times marked the shift in an essay published Monday: 'Despite all the international criticism of Israel for its multiple military offensives, from Gaza to Iran, a surge in foreign buying has fuelled the rally in its stock market…. Israel is cementing its status as the region's dominant economic force.'
Shuly Galili, managing partner and founder of the Silicon Valley-based venture capital firm UpWest VC, which invests in Israel, said she had noticed the bounceback as well.
'Between October [2023] and January – that was probably the most disruptive period,' she said. She mused that foreign investors might be swooping in to be 'contrarian' and 'to announce this is time to get best deals and put in money on ground.'
Israel is not a consensus cause in the tech world, where the rank-and-file politics often lean progressive. Last year, dozens of Google workers protested the company's contract with the Israeli government. The company fired them.
Critics continue to target Israeli policies — and its use of technology — as morally questionable. Former Prime Minister Ehud Olmert has accused Israel of war crimes in the course of an onslaught that has killed more than 58,000 Palestinians, according to local health officials.
And Palestinians say Israeli's dominance in AI should not be a selling point - it should be a cautionary tale. One group called it 'the most nefarious threat to Palestinians' living under Israeli control because of its speed, potential inaccuracies and the shift of responsibility to machines.
But these concerns do not seem to have dented Israel's appeal for investors — especially those looking for advanced military technology powered by AI.
It's all a remarkable pivot from the early days after Hamas attacked Israel and killed 1,200 people, taking hundreds more hostage. After the attack — and Israel's overwhelming military reaction — airlines canceled their flights, major tech companies nixed events, and the sector's workers were in and out of reserves.
By 2024, one financial newspaper reported tech deals were at a five-year low.
But since then, economically at least, the conflict has gone from a liability to something more like a proof of concept. In one literal example, the state-owned Rafael Advanced Defense Systems appeared to show a real-life drone attack on a man in a promotional video for its Spike Firefly loitering munition, which one analyst geolocated to northern Gaza. The company did not respond to a request for comment.
Startup Nation Central's CEO Avi Hasson said in a statement that defense companies have shifted into 'high gear: battlefield urgency has fast-tracked development, surfaced exceptional talent, and inspired a new wave of entrepreneurs. Startups are pouring into this space, and capital is following.'
Grant Demaree, a U.S. military veteran and founder of the Pentagon contractor Onebrief, says Israel had offered some real-world lessons in how to integrate AI on the battlefield.
'The biggest lesson is that for AI to be useful, it need not to be perfect, it just needs to significantly outperform people,' he said. As an example, he mentioned AI for targeting. 'We know humans make a lot of targeting mistakes all the time,' he said. 'If you can have an AI that makes fewer mistakes and is significantly faster, I think that contributes to a better outcome and is just better than just doing the process manually, even if that is still imperfect.'
Palestinians say AI — far from 'outperforming' — is responsible for some of the worst carnage of the conflict.
Hani Almadhoun, who lives in the Washington, D.C. area and runs a soup kitchen in his native Gaza using GoFundMe, said his brother Majed was killed with his wife and children in an Israeli airstrike in November 2023; a second brother Mahmoud was killed a year later by a drone. He told DFD he suspected Majed might have been mistakenly targeted by AI, though he had no way to confirm the feeling.
'AI hasn't made war smarter. It's just made it way easier to kill people without feeling guilty about it,' he said. 'That's not progress; that's just pure horror, all wrapped up in fancy computer code,' he said.
The Israeli military did not immediately respond to POLITICO's questions. In response to previous reports that soldiers were relying on an AI-based program to identify targets, the Israeli military said that AI was only used in 'auxiliary tools that assist officers in the process of incrimination.'
Meanwhile, Silicon Valley's politics are shifting, with Israel fitting into a new, Trump-aligned sensibility.
After Brin complained about a UN report accusing 48 companies – including Google, Microsoft, Palantir and Amazon – of complicity in Israel's 'economy of genocide,' Secretary of State Marco Rubio sanctioned its author. In Washington, after a Palestinian heckler accused Palantir of killing Palestinians with AI, CEO Alex Karp retorted, 'Mostly terrorists, that's true.'
Galili, the Israeli investor, said the war disrupted travel for investors and founders. But she said, 'overall we've seen a lot of support from tech leaders. I'm based in Silicon Valley and my day to day is interacting with investors in Silicon Valley. There was day-to-day a lot of support.'
There are still other factors that could slow down Israel's tech dominance. President Donald Trump has announced huge deals to sell semiconductors and build data centers in Saudi Arabia and the United Arab Emirates, which could eventually become tech powerhouses.
A more tangible cloud on the horizon might be internal politics. Before October 7, Israel was riven by protests over a plan by Prime Minister Benjamin Netanyahu to overhaul the judicial system. That began scaring investors away. A new survey by AllJobs finds nearly three-quarters of Israeli workers considering relocation overseas.
'Many things can spark political unrest,' Galili said. 'External threats we can deal with, internal threats – we're still working on it.'
California AI bills get delayed
After hitting legislative hurdles, lawmakers are putting off their push for two pathbreaking AI bills in Sacramento, POLITICO's California Decoded team reports.
One bill, sponsored by assemblymember Rebecca Bauer-Kahan, has pitted Hollywood against the tech industry. AB 412 would allow copyright owners to request information on the datasets that developers use to train their AI models. Hollywood power players, like the actors union SAG-AFTRA, have backed the bill as a tool for artists to protect their rights. However, the AI industry has warned that AB 412 would stifle innovation. Bauer-Kahan has paused her efforts to pass the bill until 2026. Her spokesperson told POLITICO's Tyler Katzenberger that this will give them time to 'resolve outstanding issues.'
Democratic state Sen. Jerry McNerney is also delaying action on SB 813, which would create expert panels to vet AI systems, after the bill got stuck in the Senate Appropriations Committee. If passed, developers would have the option to voluntarily submit their models for inspection in exchange for legal protections in personal injury cases. The Decoded team reported that a mysterious nonprofit called Fathom has been advocating for the bill since its inception. Fathom has $25 million in funding, though it hasn't disclosed who exactly its donors are.
It's 'crypto week' at the House
The House is set to vote on two cryptocurrency bills during what Republicans lawmakers are calling 'crypto week,' staffers told POLITICO's Jasper Goodman.
On Wednesday, the House is expected to vote on legislation that would effectively ban Federal Reserve banks from issuing digital currencies. Republicans have expressed concerns that such assets would give the government too much power in the cryptocurrency space. However, Rep. Maxine Waters (D-Calif.) wrote in a May House Financial Services Committee report that cryptocurrency backed by central banks could have 'a greater potential to gain broad public trust and utilization (especially after numerous digital assets have been used to defraud Americans).'
The House will then vote on Thursday on the Senate's GENIUS Act, which establishes a regulatory framework for stablecoins — cryptocurrency that is pegged to another kind of asset, like the dollar. It includes provisions to split up oversight duties among market regulators and implement measures against money laundering. If passed, the legislation could lend more legitimacy to stablecoins, and allow financial institutions to get more involved in the cryptocurrency sector. Trump's sons notably founded a cryptocurrency firm last year known as World Liberty Financial Inc., which issues a stablecoin.
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