Technology companies operating in Israel are expected to tighten security as they could face disruptions, investors and analysts said, as the Israeli military moved to a war footing that could include a full-scale invasion of the Gaza Strip.
Hamas gunmen from Gaza have killed hundreds of Israelis and kidnapped an unknown number of others, reigniting conflict in the region.
High-tech industries have for some decades been the fastest-growing sector in Israel and crucial to economic growth, accounting for 14 percent of jobs and nearly a fifth of gross domestic product (GDP).
Israeli stock and bond prices fell on Monday after gunmen from the Palestinian group Hamas raided Israeli cities on Saturday.
The militants also fired thousands of rockets at Israel in a surprise attack. Some rockets reached as far as Tel Aviv, prompting airlines to suspend flights to and from Israel.
Israel retaliated with airstrikes against Hamas targets in Gaza and hundreds of people died.
“This is a huge disruption to business as usual,” said Jack Ablin, chief investment officer and founding partner of Cresset Wealth Advisors. He said that in the short term, resources could be diverted if the conflict expands, such as staff from technology companies being called up as military reservists.
The technical personnel called in as reservists
Israel has already said it will call up an unprecedented 300,000 reservists, many of whom may come from US-based technology operations.
“We are preparing because it will take time,” said Noam Schwartz, the Israeli-born founder and CEO of ActiveFence, a technology company specializing in online threats with offices in New York and Tel Aviv.
When a country is caught literally off guard, the first thing it looks at – besides the obvious problems with intelligence – is what was missing in its security systems.
His company will continue to serve customers during the conflict, he said, even as he plans to return to Israel for military service.
“We have enough people around the world to ensure that everyone is under control.”
Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina, said a “tremendous effort” will likely be made to protect the physical installations of Israel-based companies from attacks because some technology spending is related to the military .
U.S. tech stocks are largely lower, including bellwethers with large operations in Israel.
A spokesperson for chipmaker Intel, Israel’s largest private employer and exporter, said the company was “closely monitoring the situation in Israel and taking measures to safeguard and support our workers.”
The spokesperson declined to say whether chip production was affected by the situation. Intel shares fell 0.5% on Monday.
Nvidia, the world’s largest maker of chips used for artificial intelligence and computer graphics, said it had canceled an artificial intelligence summit planned in Tel Aviv next week, where its CEO Jensen Huang was due to speak.
Israel-based Tower Semiconductor, which supplies customers with analog and mixed-signal semiconductors primarily for the automotive and consumer industries, said it was operating as usual. Its New York-listed shares fell 4.9%.
Other tech giants Meta Platforms, Alphabet and Apple did not respond to requests for comment. Microsoft declined to comment.
Israel’s tech sector had already faced a slowdown in 2023, exacerbated by internal political conflicts and protests. A growing number of Israeli tech startups have established themselves in the United States.
Artificial intelligence sector boosted by military spending
Israel’s tech sector dates back to 1974, when Intel established its presence, but the start-up scene took off in the 1990s, earning it a reputation as the world’s second-largest tech hub outside of Silicon Valley, with thousands of companies and developing a meaningful ecosystem.
There are now 500 multinationals operating in Israel – mostly research and development centers after buying Israeli start-ups – from Intel to IBM, Apple, Microsoft, Google and Facebook.
Israeli Prime Minister Benjamin Netanyahu said in June that Intel was planning to spend $25 billion (€23.6 billion) on a new factory in the southern city of Kiryat Gat, about 42 km from Gaza.
Scheduled to open in 2027, he called it the largest international investment ever in the country, which could employ thousands of people and would add to the chip plants and design centers there.
In the long term, the technology and artificial intelligence sector, in which Israel has been a leader, could see increased investment due to the industries’ close link to military spending, LPL’s Krosby said.
“Investment in artificial intelligence will probably increase,” Krosby said.
“When a country is caught literally off guard, the first thing they look at – besides the obvious intelligence problems – is what was missing in their security systems.”