Israeli Prime Minister Benjamin Netanyahu raised eyebrows recently when he spoke to The Economist about his goal to “taper off the military aid” provided by the US.
He did so directly from Mar-a-Lago, the Florida residence of President Trump, in what could be perceived as a direct message to the US and its politicians. But his comments, surely not made without the Trump administration’s prior knowledge, point to something more.
Outside of aid packages and congressional debates in a heated climate, lies a push toward greater technological and economic independence in an era in which AI is becoming the backbone of national power.
In the 21st Century, sovereignty is no longer measured solely through military might (of which Israel has plenty), but also in data, computing power, and the ability to build and deploy intelligence at scale.
And in that battle, Israel has shown it has the ability to assemble the foundations of a sovereign AI system.
If Israel’s recent past was about building startups, the next phase is about building the national-scale infrastructure on which those startups depend.
Let’s look at what gave Netanyahu the confidence to make such a claim – and how likely it is to succeed.
The strength of Startup Nation
Israel’s AI ecosystem has shown healthy growth and no signs of slowing, promising a momentum that puts the country in a powerful position.
The nation, which recorded $111 billion in deals in 2025 according to recent data from Tel Aviv-based non-profit Startup Nation Central (SNC), defied predictions of a prolonged slowdown amid war and global uncertainty.
The figure represents nearly quadruple the previous year’s total and surpasses the previous record levels.
And yet this number, while impressive, is only part of the story.
What matters within this headline-ready figure is where that capital is coming from, and what kind of companies it supports. The SNC report confirms that growth in 2025 was led by productivity and AI-driven efficiency, not workforce expansion.
“AI’s impact in Israel is structural. It reshaped workflows, compressed development cycles, and allowed smaller, more focused teams to deliver systems once associated with much larger organisations,” it said.
“This internal transformation changed how Israeli companies show up in global markets, making them easier to integrate into enterprise platforms, infrastructure stacks, and security architectures."
Export value per employee rose roughly three per cent, nearly double the 2023 increase, but high-tech employment grew only 1.5 per cent in 2025, reinforcing productivity-led growth, not human headcount.
Israel is moving beyond the Startup Nation model that garnered global recognition toward something even more ambitious – a national AI stack designed to scale innovation, anchor talent, and reduce strategic dependence on external powers.
And in Netanyahu’s mind, this means evolving to a “Systems Nation” – building technologies that sit beneath entire industries.
The real AI race is about infrastructure
At the same time, the government has begun subsidising AI computing resources for researchers and startups, a move that signals an understanding that the next phase of innovation will be constrained less by ideas than by infrastructure.
And while the AI conversation is often focused on models or consumer-facing releases like ChatGPT or Gemini, the real battleground is on the infrastructure that holds this technology.
Netanyahu knows Israel can’t compete with US hyperscalers that control the computing or cloud services, nor does he want to cosy up to China with its target to pursue state-backed AI sovereignty under the centralised control of the CCP.
Therefore, Israel is targeting bottlenecks in the AI value chain directly through government initiatives.
This is why it recently announced it would subsidise a national supercomputer to be used by the high-tech industry and academia at reduced cost.
The scheme is part of the National Programme for AI R&D Infrastructure (Telem), and will allocate computing resources for 1,000 Nvidia B200 datacenter accelerators on the backdrop of increasing global Graphics Processing Unit demand.
According to the Israel Innovation Authority, 70 per cent of the supply will be allocated to high-tech firms during the AI model training stage, and the remaining 30 per cent will be allocated to research groups in basic research stages.
The result of this will mean that academic labs, early-stage startups, and applied research teams can experiment locally, retain intellectual property, and scale without immediately relocating abroad.
It also sends a message that Israel intends to be a place where serious AI work can happen and remain, not just be invented and exported.
The AI stack that is being built in Israel is layered and spans infrastructure, talent, capital and policy. The policies may result in the country reducing its strategic vulnerability from players like the US or China. Its talent, driven by military units, successful universities and civilian-army crossover, remains intact.
The report also highlighted that capital is returning in healthy qualities, where foreign acquirers captured 98 per cent of mergers and acquisitions value (91 per cent excluding mega deals). This means the country is building what it needs, from beginning to end, to remain a significant player in the global AI race.
AI as an independence strategy
And this is where Netanyahu’s comments about reducing Israel’s reliance on US aid come into focus. Local AI-driven productivity, as outlined in the last few weeks, has the potential to expand Israel’s economic output without major increases in population, land, or natural resources. And high-value digital exports scale differently than traditional industries, which generate revenue, influence and resilience.
More importantly, control over strategic technologies changes the terms of international partnerships for Israel. Independence means it can negotiate economically and diplomatically from strength, despite what Netanyahu’s critics may say.
For years, Startup Nation represented Israel’s ability to build startups at an extraordinary speed. For a while, there was talk of Startup Nation becoming a Scale-up Nation – and there are many success stories to help it hold that title.
But in the AI era, investing in infrastructure and aligning policy with long-term strategic goals, Israel is laying the groundwork for its “Systems Nation” boom, which is less dependent on foreign aid and more secure in its technology foundations.
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