From Intel to Nvidia: The Israeli economy is once again betting on a single tech giant
The growth data published this week highlighted Israel's dependence on the chip giant Nvidia. However, unlike the past, when Intel was the dominant company in the local industry, this time it is a new type of risk: production is carried out abroad and the products do not pass through Israel at all. And also: is the chip giant on its way to receiving state benefits?
When Nvidia acquired Mellanox from Yokneam six years ago, few in the Ministry of Finance and the Bank of Israel believed that in a short time the company from the north would become not only a global phenomenon and the company with the largest market value in the world, but also the main engine behind the growth of the Israeli economy - all this without producing even one chip within the country's borders. Now, employing about 6,000 local workers, Nvidia's footprint on the economy has become so deep that the Central Bureau of Statistics (CBS) had to create a new figure that corrects the growth data by neutralizing its activity.
How did the communications division of the chip giant, which produces chips in Taiwan and does not move goods within the country's borders, become the new locomotive of the Israeli economy?
"GDP that falls from the sky"
At the beginning of the week, the CBS published the growth data for the second quarter, which beat forecasts - the economy grew in the second quarter by 15.4% in annual terms, which represents an increase of 3.6% in quarterly terms. When neutralizing what the CBS calls "exports that did not cross the country's borders", i.e., export activity attributed to Israeli companies but carried out from production plants overseas, the growth was lower and stood at 14.4%.
Behind this separation is an accounting, or even prosaic, explanation: when Nvidia acquired Mellanox for $6.9 billion, it left the company's operations from Yokneam as a separate accounting unit, so a significant portion of the revenue is attributed to it - even though the actual production of chips and servers, sold globally for billions of dollars, does not take place in Israel at all. It occurs at TSMC plants in Taiwan, from where the products are exported to the world, or integrated into servers of American companies like Dell and HP.
But even if we put the accounting explanation aside, these data prove to everyone how important Nvidia is for growth and tax revenues. Israel's goods export data show that "exports that did not cross the country's borders" - attributed mostly to Nvidia and marginally to other companies like Camtek and Nova - stood for years at about $2 billion per quarter. Last year alone, there was a 74% jump compared to 2024, when a growth of $7 billion was seen. In the first quarter of the current year, it already jumped to $8 billion.
Without the activity of Nvidia and its peers, the economy would have contracted in the first quarter by 5.8%. Over the entire last year, the Israeli GDP grew by 3.5%, but without Nvidia, the growth would have amounted to only 2.1%.
Apparently, according to CBS data, the gap between growth in the first quarter without Nvidia (14.4%) and growth with Nvidia (15.4%) is one percent, but economist Prof. Benjamin Bental, a senior consultant to the Aaron Institute, argues that the more accurate way to look at the data is in annual comparison, i.e., between the second quarter of this year and the corresponding quarter last year. In this view, which neutralizes seasonality, growth without weighting Nvidia stands at 5.5%, compared to 7.2% with the company included.
"We are receiving GDP that falls on us from the sky. It is not related to employment in Israel or the labor productivity of the Israeli worker," says Bental. "This is, of course, a return on Israeli knowledge and initiative, so there is logic in including it in the national accounting, but it does not represent an improvement in the quality of life or productivity of the Israeli worker."
Yonatan Katz, a macro-economic strategist at Leader Capital Markets, examined the growth data published over the last two years and found that compared to an official growth of 10%, if not for the activity of Nvidia and its peers, the figure would have stood at only 6.6%. "The meaning of the growth originating from Nvidia is that it is not really our growth - of the Israeli economy - and the attribution of production done in Taiwan does not reflect the basic local activity of the economy," he says. "Just as the state inflates growth data because of a company whose most activity is not in Israel, so it shrinks debt data in terms of GDP, which currently stands at about 70%, but in practice it is closer to 74%."
What caused the turnaround?
What brought about the meteoric rise in export data that does not cross Israel's borders is not only the extraordinary success of Nvidia, which is currently traded at a market value of $5.3 trillion, but the growing importance of its Israeli division, based on Mellanox's activity. According to Nvidia's reports from recent years, until the end of 2024, Mellanox's quarterly revenues were around an average of $3 billion. But starting from the beginning of 2025, there was a sharp jump in the division's quarterly revenues: from $5 billion in the first quarter to $11 billion in the last.
In the latest reports submitted by Nvidia in May, it revealed that in the first three months of the year, Mellanox had already sold almost $15 billion per quarter. This is not just rapid growth and a division growing at the fastest rate in the company, but also a sharp increase in the share of Mellanox's revenues out of Nvidia's total revenues; these jumped from 11% at the beginning of 2025 to 18% today.
Two main factors led to the accelerated growth in Mellanox's revenues in the last year and a half: the first is the growing demand for artificial intelligence services, which dictates larger and larger language models - currently including trillions of parameters (processing units). These models require not only a higher number of graphics processors, but also more precise synchronization between them - between processors in the same server, between different servers, and sometimes even between server farms remote from each other. Mellanox's processors specialize in managing this communication, so the role of the Israeli company becomes critical to its success.
The second reason is the internal memory limitation that burdens Nvidia's graphics processors, and forces the company to compensate for this by accelerating communication between the different processors.
The case of Intel
Here exactly lies the danger of excessive reliance on Nvidia as such a prominent source for the growth of the entire Israeli economy. At the same speed that Mellanox became a bonanza for Nvidia, it could also lose its coveted status: if Nvidia finds a new way to optimize the memory activity of its processors, or if competitors emerge that challenge it in price and memory capacity, it would be possible to theoretically witness a change in Mellanox's status.
The obvious comparison is to the American competitor Intel, which was the dominant company in the Israeli industry and in recent years was forced to fire a quarter of its 12,000 employees in Israel and freeze the construction of two new plants in Kiryat Gat. At the same time, it also stopped reporting to the public about its contribution to the Israeli economy. In the last report from 2022, Intel published that chip exports from Kiryat Gat are responsible for 1.75% of the annual GDP, an all-time high.
The state also stopped its commitments to Intel: so far the state has invested about 5 billion shekels in various grants to Intel and committed to invest another 11 billion shekels - of which it canceled a grant of 1.8 billion shekels and the rest is hanging in the air waiting for developments.
So is the Israeli economy really dependent on Nvidia? "Assuming the tap is closed and Mellanox stops producing abroad, there might be an impact on GDP but not on the real economy in Israel," estimates Gil Epstein, a professor of economics at Bar-Ilan University and head of the labor market field at the Taub Center. "There will be some impact on tax revenues, and perhaps also on employment, because the large increase in the number of Nvidia employees in Israel is thanks to its activity here. But this will be much less significant than any decision Intel might make here regarding its production plant and its three development centers."
Yonatan Katz from Leader presents a similar assessment: "High-tech exports without Nvidia reach 11% in GDP terms. There are about 400,000 employees here in a wide variety of companies, international development centers, and startups and defense companies, so the high-tech sector is stable enough even without Nvidia."
The path to benefits
Either way, and although Nvidia did not build a plant in Israel and does not employ production workers here, it also maintains special relations with the state. In its reports to the stock exchange, it claimed that the tax it pays in Israel reached $1.28 billion in 2025, representing 4% of the communications division's revenues. The value of its assets grew from $840 million in 2024 to $1.47 billion last year.
In return, Nvidia expects not only a reduced corporate tax (which currently, according to estimates, stands at 9%), but also continued purchases of graphics processors by the state, which intends in the coming years to carry out direct and indirect purchases of 100,000 graphics processors with a total budget of $13 billion.
