An Israeli high-tech bubble? Why Israeli high-tech isn't going anywhere
21.01.2023 | Yishai Gelb
Over the past year, we’ve been flooded with articles and reports on the Israeli “high-tech bubble”. Headlines suggested that thousands of people were being laid off and fewer companies were able to raise as much money as in the past few years marking the end of Israeli high-tech.
It is true that there were layoffs, and the demand for employees in the HR department, marketing staff, and even software developers has dropped since 2020-2021. however, 2020-2021 aren't worthy of comparison for where we are today.
2021 was the peak year for Israeli high-tech with investments of $25.6 billion in IT and software companies alone, a 156% increase from 2020. 2021 was a year in which stock markets and technology companies all over the world enjoyed an influx of cheap money and a massive amount of capital, mainly due to the pandemic's effect.
The government helicoptered cash into the economy, and with many businesses closed and traditional entertainment unavailable, people spent their extra cash on services from home - the technology companies' favorite marketplace. People’s overconsumption of internet services during the lockdown periods sent technology stocks and investments soring. Now that the effects of the pandemic on the economy are coming to an end, the economy is hungover. A combination of high-interest rates (making money more expensive), lower consumption due to inflation, and an unstable world market due to the war in Europe and China's economic slowdown are correcting the markets to look more like the economy of 2003-2005.
What does this mean?
Israeli high-tech, as well as technology companies in general, aren’t going anywhere. The fourth industrial revolution is here to stay, regardless of wars, pandemics, inflation, or culture wars. The fourth industrial revolution is the influx of the internet into everything, more commonly known as “the internet of things - IOT. This means that high-tech isn't an industry in itself, but rather the integration of software into everything, from transportation, food, military, entertainment, the workplace, and education - just everything. And so the market for high-tech is in all markets.
In Israel specifically, we will continue to see the growth of high-tech services companies for two main reasons. First, the military complex. The war in Europe and the Abraham accords are sending Israeli military equipment sales through the roof. What makes Israeli military equipment so valuable is the brains in the machine. As the world continues being a more dangerous place, thus arms sales will continue, thus keeping many technology companies in business.
Second, Israel’s finance industry. The new market opened to Israel in the Middle East as well as a strengthening Israeli economy is enlarging the finance industry. Like all other industries, finance and high tech are in a loving marriage and will continue to grow together, including digital banking, cyber security, investing and complex finance markets relying on algorithms and sophisticated software.
And third, the consumer market in Israel isn't slowing, and with it the consumption of everything. And as we said already, the internet is in everything now. So the more consumption there is of everything, the more high tech will continue to grow.
The list goes on but the point is clear. The is no high-tech bubble in Israel. Software developers aren’t going anywhere. The big opportunity now is that most of your internet-based companies' stocks are very low, so go and get some stocks at a discounted price!