Chip companies worried about war wanted a new Taiwan. Now they're investing in Israel

Chip companies have invested billions in Israeli manufacturing and design facilities over the past decade, and they've continued that push over the last six months. A unique talent base and a rich history of tech innovation drew them in, but the region's instability looms over that decision.

Chip companies worried about war wanted a new Taiwan. Now they're investing in Israel
Photo by Taylor Brandon / Unsplash

Israel has long been a key component of the global chip supply chain, thanks to the presence of the world’s biggest chip makers— including Intel and Nvidia. But over the last several years as worries about the industry's reliance on Taiwan have spread, big tech giants like Apple, Google, and Amazon opened chip design groups in Israel and chip makers doubled down on their existing investments.

With billions of dollars recently invested in Israel, it stands right at the nexus of a new era in semiconductor production. It also stands at the center of a decades-old conflict between Israel and its Arab neighbors, which escalated dramatically last October after Hamas attacked several towns in southern Israel, killing over 1,000 people, and Israel followed with a devastating response in Gaza that has killed 30 times that many people.

But despite the unrest, ties between Silicon Valley and Israel are still growing in hopes of tapping into the strong base of tech talent that has emerged from the country over the last several decades, and chips — perhaps the most geopolitically fragile component in the technology supply chain — will play an increasingly important role in its future.

Chip companies are attracted to Israel thanks to its thriving ecosystem of innovation, which is driven by a culture of risk-taking and entrepreneurship, said Orr Danon, co-founder and CEO at AI chip manufacturer Hailo. While Danon acknowledged that “Israel is poor in natural resources such as oil and minerals,” he touted its “highly skilled workforce, supported by strong STEM education,” as a “major driving force of the economy that provides a valuable talent pool for semiconductor companies.” 

Danon also pointed to the Israeli government’s favorable policies toward chip investment, including R&D grants and tax incentives, as another major reason the country is seeing all this investment and talent emerge.

Sands of time

Israel has a long history of technology innovation dating back to the 1960s, when the term "Silicon Wadi" was created to describe a growing sector of companies around Tel Aviv and along the Israeli coast. For decades, U.S. companies have snapped up cybersecurity talent and companies emerging from founders who served in Israel military operations, and more recently chip companies have based their AI strategies around technology developed in Israel.

For example, Intel acquired Israeli AI firm Habana Labs for $2 billion in 2019, and it has become the cornerstone of its AI strategy during the generative AI craze. Navin Shenoy, who until 2021 managed the data center division of Intel, described the purchase in a press release as a necessary move to meet the changing needs of Intel's customers, including Al, data-center, and edge-computing chips. 

Over the last three decades, Intel Capital has invested more than $20 billion in Israel, across areas from artificial intelligence to semiconductor manufacturing. Since its establishment in the Israeli tech scene in 2014, the corporate venture capital arm of Intel has made over 100 investments in local tech companies. And Intel closed 2023 by announcing a $25 billion expansion of its manufacturing presence in Israel in the southern city of Kiryat Gat, less than 20 miles from Gaza.

In 2019, Nvidia won a bidding war against other giants like Microsoft, Xilinx, and Intel, completing the acquisition of Mellanox Technologies for $7 billion. Mellanox, which designs and manufactures high-performance networking products for data centers, has been one of the key factors behind Nvidia’s enormous growth in the data center market thanks to demand for AI technology.

In 2022 Nvidia also acquired Excelero, an Israeli startup that provides enterprise data storage and block storage services for a reported $35 million. And just last month, Nvidia acquired yet another Israeli AI firm,, which specializes in AI infrastructure orchestration and management. 

In 2022 Intel tried to acquire its sixth Israeli company in five years, announcing plans to buy Tower Semiconductor for $5.4 billion. Tower Semiconductor, which specializes in manufacturing custom-designed chips for cars, would have supported the expansion of Intel’s newly-established foundry business, but the deal fell through in the third quarter of 2023 due to regulatory pushbacks.

Qualcomm also attempted to acquire Israeli auto-chip maker Autotalks in 2023 for $400 million, but likewise terminated the deal early in 2024 due to “lack of regulatory approvals in a timely manner.”

Design thinking

It's not just the chipmakers themselves that are developing ties to Israel's chip scene.

Back in 2015, Amazon acquired Israeli chipmaker Annapurna Labs to design chips for AWS. The $370 million deal also included an agreement for Amazon to open a R&D center in the country. The acquisition powered the development of Amazon’s Graviton processors, which were the first production-ready Arm-based server processors released by a major enterprise tech vendor.

Apple is also setting up its new R&D center in Israel, adding to the two it already owns in Herzliya and Haifa. This new center will focus on building chips for Mac computers, which it has been using to replace Intel's chips for several years.

Google is another company increasing its ties to Israel. Back in 2021, the tech giant announced its new microchip division in Israel (headed by former Intel Israel senior executive Uri Frank) would develop new motherboard designs, guaranteeing higher performance and less usage for its computing systems. That work appears to have led to Axion, Google's first Arm-based server processor introduced earlier this year at Google Cloud Next.

Belt and road

But China, the threat that spurred chipmakers around the world to reduce their dependence on Taiwan, is also trying to invest in Israeli companies. The bulk of China’s foreign investments and M&A activity, for example, have been directed to “high tech fields,” with notable attention to Israel’s chip and semiconductor industry.

In 2016, Huawei acquired Israeli-based Toga Networks, an IT networking research company, in a $150 million deal. Toga Networks has since become the telecom giant’s R&D center in Israel, leading development in software-based system and chip design. Other noteworthy deals include Fosun International’s 96% acquisition of Alma Lasers for semiconductors in medical technology as well as investments by companies like Yongjin Group, Baidu, Ping-An, Qihoo, and Shengjing 360 in Israeli venture capital firms that fund semiconductor companies.

Beyond these partnerships, China also plays a different game in the global chip community, deploying regulatory tactics in the US-China chip dispute that use Israeli companies as pawns.

Chip deals in Israel projected to increase the United States' influence in the region have been known to face ‘regulatory pushbacks’ when they reach the desk of China’s State Administration of Market Regulation, the agency that approves “deals between large multinationals in which the two participants generate revenue in China of more than 400 million RMB" ($55 million). Intel’s failed $5.4 billion purchase of Tower Semiconductor was allegedly one of such deals.

Follow the talent

John Medved, founder of Israeli VC firm OurCrowd, explained why chip-related investment in Israel has only grown stronger over the last few years. For Medved, AI chips are the hottest and most important area of semiconductor production today. 

“Israel is a very critical piece of the puzzle because it remains a vital chip production location due to its massive (base of) tech talent.” Medved cited the presence of chip manufacturing leaders KLA and Applied Materials in Israel as proof of Israel’s prowess in chip design driving these investments. 

In addition to Israel’s technological skills, Avi Baum, CTO at Hailo, believes that this trend is also a result of Israel being “the Switzerland for technology,” meaning neutral and adaptable. “My personal belief is that innovation thrives on the grounds of sharing. It goes back to the former point about being in an open ecosystem or a closed one,” he said.

Baum believes that because the Israeli tech ecosystem fosters a culture where ingenuity is held in higher regard over geopolitical or ideological differences between its citizens, it’s not surprising to see an innovative culture thrive.

Hailo develops advanced AI processors for edge computing devices, and it is “managing to run the business and secure [their] customer programs without any interruption or interference.” This is because most of the work done in Israel is in R&D and as such, “the manufacturing, the supply chain management, and interfacing with customers is done with providers and suppliers overseas,” Baum said. “As long as there’s communication, they are in full operational shape.”

The next few years may witness even more geopolitical rivalry in the development and production of chips, especially in the AI era. And U.S. military experts continue to believe that China intends to invade Taiwan by 2027, which nearly everyone involved believes would cause incredible disruption to the global chip supply chain.

Under that scenario, Israel could emerge as a credible backup supplier for the world's insatiable demand for chips. It has the talent base and backing from the big tech powers to break through, but it will need the support of the international community to supplant Taiwan as the chip capital of the world as the catastrophic war in Gaza drags on.

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