Israel’s AI hopes high, but investment and talent shortages persist
In 2023, half of the investments in startups, both in terms of capital and the number of rounds, were in AI companies, with investments in generative AI startups jumping by 85% between 2020 and 2023. However, this seemingly positive trend is overshadowed when compared globally. Between 2020 and 2023, the volume of investments in AI in the U.S. increased tenfold, and in Europe, it quadrupled
What is Israel's real situation in the field of AI with an emphasis on generative artificial intelligence? According to official data, Israel is currently ranked seventh in the world in the field of artificial intelligence, having dropped from fifth place in 2020. The RISE Institute (formerly SNPI) decided to investigate the issue more deeply, and the results obtained are inconclusive but interesting. This research is part of the AI Forward project led by the institute in collaboration with Google, which aims to formulate and implement policies and regulations for artificial intelligence to benefit society and the economy in five areas with the highest potential impact on the lives of Israeli citizens.
The project, launched recently, is directed by a steering committee consisting of senior officials in the field of artificial intelligence in Israel: Boaz Maoz, Managing Director, Google Cloud Israel, at Google, (chairman of the steering committee); Prof. Eugene Kandel, chairman of RISE Israel; Shai-Lee Spigelman, former CEO at the Ministry of Innovation, Science and Technology; Dr. Lital Helman, expert in law and technology; Uri Eliabayev, consultant in the field of artificial intelligence; Shimrit Bainhoren, CEO of MAOZ; and Mahmoud Rahman, former senior deputy director of wage & labor agreements at the Ministry of Finance.
As per concerns within the tech industry, Israel is indeed receiving relatively less investment in AI. One major factor is the lack of human capital required to establish and promote companies in the field. However, Israelis are among the biggest believers in AI's future and are willing to embrace generative artificial intelligence, believing it will improve life. In contrast, in most countries, including leaders in the field like the USA, the general public fears AI's impact on employment and life.
In Israel today, 2,300 companies operate in the field of artificial intelligence, making up 25% of the local ecosystem. One-third of the companies founded in the last five years are directly involved in AI. Half of the startups established in 2023 utilized AI technologies, compared to about a third in previous years. In 2023, half of the investments in startups, both in terms of capital and the number of rounds, were in AI companies, with investments in generative AI startups jumping by 85% between 2020 and 2023. Unlike "regular" high-tech companies, where only 55% succeeded in raising capital, nearly 70% of AI companies did so.
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However, this seemingly positive trend is overshadowed when compared globally. Between 2020 and 2023, the volume of investments in AI in the U.S. increased tenfold, and in Europe, it quadrupled. The main gap emerged in the last two years when Europe and the U.S. maintained high investment levels even during the high-tech slowdown in 2022 and 2023, while Israel's investments in 2023 fell back to 2018 levels. The conclusion is that Israel is not capitalizing on the tremendous investment momentum generated by the generative AI revolution, creating a significant gap between it and the world, including often slow-to-adopt Europe.
A major bottleneck identified by SNPI is the lack of human capital. Professions related to AI development or application require academic education, unlike general programming, which many practice without formal training. Paradoxically, Israel ranks first in the world for the concentration of human capital for AI and fifth in the penetration of AI-relevant skills (2015-2023), at 1.63 times the global average. However, the question remains whether Israel has enough human capital to support the growth and sustainability of its AI innovation ecosystem.
In the last decade, Israel has faced a shortage of human capital relative to the rapid surge in demand for fields like computer science, programming, and hardware engineering. Over 60% of AI positions rely on employees with advanced degrees, but fewer than 700 master's graduates in computer science, mathematics, and statistics join the labor market annually, with only 100 doctoral graduates per year. About 15% of master's degree holders and 21% of doctoral graduates in computer science move abroad. The lack of workers with advanced degrees is also evident in the unusually high salary levels in this field, even compared globally. More than 60% of Israeli workers in machine learning and data science, central to AI, earn over $100,000 annually, compared to slightly less than 60% in the U.S. and under 30% in the UK and Canada.
Despite the relative scarcity of advanced degree holders in STEM subjects in Israel, the Israeli academic sector stands out in terms of the number of internationally cited articles in AI. While Israel is responsible for 0.5% of articles published on AI between 2017 and 2023, it garnered 2.1% of AI article citations during the same period. This highlights the potential harm from the emerging academic boycott against Israel due to the war in Gaza.
Reflecting Israel's lag in attracting AI investments, the assimilation of these technologies stands out. A survey by RISE illustrates the roots of Israeli innovation and entrepreneurship, showing Israel's unique willingness to adopt AI and believe in its positive impact. While about 55% of Israelis felt AI hasn't significantly affected their lives in recent years, over 80% expect its impact in the next 3-5 years, compared to a global average of 65%. Furthermore, while globally only 55% believe AI has more advantages than disadvantages, 80% of Israelis hold this optimistic view, the highest rate worldwide.
