The picture in high-tech is changing: software companies are laying off and hardware companies are expanding
A new survey by the Israel Innovation Authority and Tzafrir company presents a complex picture of Israeli high-tech, where the total number of employees remains stable but demand is changing. While software companies are streamlining and laying off, the hardware and deep-tech sectors continue to expand. In the background, the influence of AI is growing and is beginning to be a central consideration in employers' workforce planning for the second half of the year.
A new survey by the Israel Innovation Authority and Tzafrir company presents a picture less simple than a wave of layoffs in high-tech: the number of employees in the industry has remained almost unchanged, companies continue to hire, but the market is splitting between software companies that are streamlining and laying off more, and hardware and deep-tech companies that continue to expand. According to the survey, in the first half of 2026, companies hired on average employees in the volume of 8% of their workforce, and laid off only 2.8%. At the same time, 4.3% of employees left voluntarily, so that in total there was no significant change in the number of employees in the industry.
The survey data align with the macro picture: according to the Employment Service, there were about 15,000 job seekers in technology professions, and simultaneously, according to the Central Bureau of Statistics' job vacancy survey, there were about 18,000 job vacancies in the industry. Processing of CBS data by the Aaron Institute points to a growth of about 7% in the number of employees in high-tech in the first quarter of 2026, to about 424 thousand employees. The Innovation Authority offers an explanation for the gap: the market is not necessarily shrinking, but changing the composition of its demand.
Gaps between sectors and company sizes
Behind this average hides a sharp gap between sectors. The layoff rate in software companies stood in the first half of the year at 6.6%, more than 2 times the industry average. In hardware companies, it stood at only 1.1%, and in pharma and medical companies at 2.7%. According to the Innovation Authority, this gap connects to the different impact of artificial intelligence: software companies experience competitive pressure and streamlining, while hardware companies benefit from the demand for chips, computing infrastructure, and deep-tech technologies.
The practical meaning is that the labor market can look stable from above, and still be very difficult for certain employees. An employee finishing a role in a software company cannot always immediately integrate into a position opening in a hardware or chip company, due to differences in knowledge, experience, and specialization. Therefore, even when the total number of employees remains stable, some employees may encounter difficulty in reintegrating in the short term.
Company size also matters. The highest layoff rate was recorded in companies employing between 50 and 200 employees, where the rate of laid-off workers reached 8.7%, more than 3 times the industry average. These companies were almost half of the companies that carried out particularly broad layoffs. The Innovation Authority says that it is possible that companies of this size are more exposed to business and cash flow pressures, including exchange rate changes and the rising cost of employment in Israel, and at the same time they are large enough to carry out broad streamlining moves.
Looking ahead: a decrease in recruitment in the second half of 2026
Looking ahead, more than a third of high-tech companies plan to reduce employee recruitment in the second half of 2026. Almost 37% of high-tech companies predict that the volume of employee recruitment in the second half of 2026 will be lower than in the first half - compared to only 19.3% in other sectors of the economy. Compared to the previous survey, this rate rose in high-tech companies by 14 percentage points, from 23% to 37%. The planned recruitment rate fell from 7.2% in the first half of 2026 to 5.9% in the second half. At the same time, the planned layoff rate among companies expecting broad layoffs rose from 4.1% to 6.4%.
The impact of artificial intelligence on the market
Artificial intelligence is not yet the main reason for layoffs, but its influence on recruitment decisions is strengthening. The rate of companies that reported broad implementation of AI in their products rose within half a year from 21% to 30%. Likewise, 3 times more companies noted that they reduced new workforce recruitment due to AI implementation in June 2026 compared to December 2025 (an increase from 3% to about 10%).
Regarding reductions and closing teams, the rate of high-tech companies that noted streamlining as a reason remains high and rose from 26% in December 2025 to 28% in June 2026. Alongside this, the rate of high-tech companies that noted AI tool implementation as a reason for reducing or closing teams and departments rose from 4.69% in December 2025 to 6.93% in June 2026. The Innovation Authority emphasizes that the data do not indicate an immediate replacement of employees with artificial intelligence, but a gradual change in the structure of demand.
"The survey indicates that Israeli high-tech is not in a period of retreat, but in the midst of deep structural change," says Dror Bin, CEO of the Innovation Authority. "We do not see high-tech that is weakening, but high-tech that is changing rapidly: we already understand that the story of 2026 is not how many employees are laid off, but what skills the market is looking for."
