For twenty years, the Israeli tech model was simple: development in Israel, sales in the US. Companies that grew moved management, marketing and sales to New York or San Francisco but kept the engineers here, because Israeli engineers were good, creative and relatively cheap. When a company cut, it cut sales and marketing first. Development was protected.
This year that order is reversing. The layoffs at Axonius, in which 46 of the 66 people being let go are employees of its Israeli development center, are a clear example, but not the only one. The Israel Innovation Authority's 2026 high-tech status report also pointed to a 6.5% drop in the number of R&D employees in Israel, the first in a decade. At the same time, the share of employees based in Israel among all employees of Israeli tech companies has fallen.
The first reason is AI tools. When an AI agent writes part of the code, tests it and fixes it, a team of ten engineers can do work that used to take twenty. Management knows it, and so do investors pushing to cut costs. The second reason is less comfortable to discuss: an engineer in Israel is no longer cheap. Salaries here rose sharply over the past decade, and for an American company a senior Israeli engineer sometimes costs close to one in the US, without the advantage of being near the customer.
And a third reason no CEO will say out loud: uncertainty. Years of war, prolonged reserve duty and a political crisis led many companies to spread risk and build teams in Portugal, Poland, India and the US. When cuts are needed, it is easier to cut in a place seen as risky.
The meaning for Israel is broader than a few hundred jobs. Israeli tech's advantage has always been engineering talent. If companies find they need less of it, and that it can be found elsewhere, Israel needs a new advantage. Those building products in Israel now with small teams and AI need to prove the advantage is still here. Those who only cut and say it is because of AI mostly prove the opposite.
