Israels tech sector shrinks amid AI uncertainties

The last quarter of the year is the preferred time for tech companies – large and small to cut “excess fat” and lay off employees ahead of a new year that will be more efficient and goal-oriented. This year too, layoffs have been announced, including the profitable tech giants that are imposing large waves of layoffs. But this time the wave is different from the past, and what is behind it is mainly fear and uncertainty about the affect AI will have on the industry.

Earlier this week there were reports that Amazon is preparing for one of the largest waves of layoffs in its history – 10% of all company employees – over 30,000 employees out of 350,000, “Reuters” reports.

Amazon has so far confirmed that it will lay off only 14,000 employees but has not denied plans to lay off more. Amazon employs about 1.2 million shift workers in its warehouses, service network and delivery fleet, but so far has refrained from making such drastic cuts among the corporation’s employees – which include administrative, marketing and research and development personnel. These are the people responsible for developing the Amazon website or its cloud service, AWS. Estimates are that the shock waves of the layoffs are also expected to reach Israel, although to a lesser extent.

Reorganization and closure of operations

Layoffs have also been imposed by Microsoft, Applied Materials, Google, and even prominent AI companies. Meta laid off 600 employees at its AI labs based on the acquisition of Scale AI, and other companies. The AI layoffs have also been clearly visible in Israel, in companies of all sizes, including unicorns that bring in hundreds of millions of dollars annually.

One of them is Lightrix, an Israeli company that is one of the world leaders in developing video models for producing short videos and competes with OpenAI’s Sora. Lightrix dismissed 85 employees earlier this week as part of a reorganization that should eventually create a language model building and AI technologies division. The company did announce that it would recruit 30 AI employees, but the general trend is clear. Previously a company that employed nearly 700 people, Lightrix will have only 450 employees at the end of the reorganization process.

Yotpo, also a long-standing Israeli unicorn, which has developed a product recommendation management system for e-commerce sites with annual revenue of $150 million (but is not profitable) dismissed about a third of its employees last summer – 200 people, including 80 in Israel. This is part of a trend aimed at freeing up more resources for investment in AI. The company announced at the time that it would now invest in implementing AI-based recommendations in its products.

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In Israel, dozens of employees were laid off from HP as part of a trend of cutting 2,000 positions to save money for investment in AI. Applied Materials in Rehovot made cuts due to the trade war with China and Fiverr also laid off 250 employees.

Companies are preparing for the unexpected

“There is a combination of fear of the future, identification of opportunities and also savings as a result of implementing AI tools,” says Guy Preminger, partner and technology leader at PwC Israel. “Companies are trying to predict the future – how AI will affect their market and their productivity. They are weeding out all the activity that will no longer bring value in the near future and cutting out dead wood. Instead, they are investing in other places – where it is worth investing for the AI era, which also seems to be coming faster than we thought, and is also full of uncertainties arousing fear of the unexpected.”

Preminger also believes that the spread of AI-based development tools is saving major resources for companies and making jobs redundant. “I recently met with an entrepreneur who showed me a product that looked like it could be developed for $10 million with ten programmers. When I asked him, he explained to me that the work took a little more than one weekend. AI tools are now making some programmers redundant. Ultimately, AI doesn’t sleep, doesn’t go out to eat or go on vacation. If companies realize that it’s more economical for them to replace employees with AI, this is the beginning of a revolution that we haven’t seen perhaps since the industrial revolution that will change the job market.”

Miriam Shtilman, a partner at the venture capital fund Tal Ventures, believes that companies are afraid of becoming irrelevant. “Giant companies are afraid of the Kodak moment, a moment when they suddenly collapse due to the entry of a lean and fast competitor, which from the beginning was not built as a large company. Companies must prepare for a change that is not clear when it will come and whether it will happen slowly or all at once.”

Eyal Solomon, CEO of tech placement company Ethosia, sees the wave of layoffs as part of an ongoing trend. He says, “Companies are stopping growing. It’s not just a high-interest environment that makes it difficult for them to raise capital but also the desire to strive for profitability at the expense of growth, and the ability to use AI tools instead of hiring employees. Today, employees are leaving without being replaced.”

Solomon’s assessment is realistic: According to the Israel Innovation Authority, the Israeli tech industry has shrunk in recent years, with 5,000 employees being laid off from the industry in 2024, and for the first time in a decade, the industry has not grown. However, for those who “remain” in the industry, conditions are only getting better. According to PwC, in companies that are more exposed to the AI market and AI products, wages are rising at twice the rate compared with other industries and income per employee is three times higher.

Published by Globes, Israel business news – en.globes.co.il – on October 29, 2025.

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