When Nvidia acquired Mellanox six years in the past, few officers on the Ministry of Finance and Financial institution of Israel would have imagined that inside a short while, the US chipmaker would grow to be not solely a world phenomenon and probably the most helpful firm on the planet, but in addition a significant engine behind the expansion of the Israeli economic system – all with out really producing a single chip in Israel itself. With 6,000 staff in Israel, Nvidia’s footprint within the economic system has grow to be so giant that the Central Bureau of Statistics has produced a brand new determine for development with out Nvidia’s exercise.
How has Nvidia’s networking division, which manufactures the precise chips in Taiwan, grow to be the brand new engine of the Israeli economic system?
“Manufacturing falling from the sky”
Earlier this week, the Central Bureau of Statistics printed Israel’s GDP development figures for the second quarter, which simply beat forecasts. GDP grew within the second quarter by 15.4% on an annualized foundation, which represents a rise of three.6% on a quarterly foundation. Excluding what the Central Bureau of Statistics calls “exports that didn’t cross the nation’s borders,” which means export exercise attributed to Israeli firms however carried out from abroad manufacturing crops, development was decrease at 14.4%.
There’s an accounting, and even prosaic, rationalization behind this separation: When Nvidia acquired Mellanox for $6.9 billion, it left the corporate’s Yokneam operations as a separate accounting unit, in order that a good portion of the income is attributed to it, although the precise manufacturing of the chips and servers, that are offered worldwide for billions of {dollars}, just isn’t carried out in Israel in any respect. It takes place in TSMC crops in Taiwan, from the place the merchandise are exported to the world, or built-in into servers of US firms comparable to Dell and HP.
However even placing the accounting rationalization apart, these figures show for all to see how vital Nvidia is to development and tax revenues. Israel’s items export knowledge exhibits that “exports that didn’t cross the nation’s borders,” which is attributed largely to Nvidia and marginally to different firms comparable to Camtek and Nova, stood for years at about $2 billion each quarter. Final 12 months alone there was a 74% soar from 2024, with a rise of $7 billion. Within the first quarter of 2026, this determine has risen to $8 billion. With out the exercise of Nvidia and others, the economic system would have contracted within the first quarter by 5.8%. Over all the earlier 12 months, Israeli GDP grew by 3.5%, however with out Nvidia, development would have amounted to solely 2.1%.
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In line with Central Bureau of Statistics knowledge, the hole between development within the second quarter with out Nvidia (14.4%) and development with Nvidia (15.4%) is 1%. However economist Prof. Benjamin Bental, a senior advisor to the Aharon Institute, says a extra correct means to take a look at the information is with an annual comparability, between the second quarter of 2026 and the corresponding quarter final 12 months. Neutralizing seasonality, annual development with out Nvidia was 5.5%, in contrast with 7.2% with the corporate’s inclusion.
“We’re receiving a product that falls on us from the sky. It isn’t associated to employment in Israel or the labor productiveness of the Israeli employee,” says Bental. “That is in fact a return for Israeli information and entrepreneurship, so it is sensible to incorporate it within the nationwide accounting, but it surely doesn’t signify an enchancment within the high quality of life or productiveness of the Israeli employee.”
Chief Capital Markets chief economist Jonathan Katz examined the expansion figures printed over the previous two years and located that in contrast with official development of 10%, with out the actions of Nvidia and the like, the determine would have been simply 6.6%.
He says, “The which means of development originating from Nvidia is that it isn’t actually our development – of the Israeli economic system – and attributing manufacturing carried out in Taiwan doesn’t replicate the fundamental native exercise of the economic system. Simply because the state inflates the expansion figures due to an organization with nearly all of its exercise not in Israel, so it shrinks the debt figures by way of GDP, which is presently about 70%, however in actuality it’s nearer to 74%.
What induced the turnaround?
What led to the meteoric rise in export figures that don’t cross Israel’s borders just isn’t solely the extraordinary success of Nvidia, which is presently buying and selling at a market cap of $5.3 trillion, however the rising significance of its Israeli division, primarily based on Mellanox’s operations. In line with Nvidia’s reviews from latest years, till the tip of 2024, Mellanox’s quarterly income averaged round $3 billion. However beginning early 2025, there was a pointy soar within the division’s quarterly income from $5 billion within the first quarter to $11 billion within the fourth quarter.
The newest report filed by Nvidia in Could revealed that within the first quarter of 2026, Mellanox income reached virtually $15 billion. It’s not nearly fast development and the corporate’s fastest-growing division, but in addition a couple of sharp improve in Mellanox’s share of Nvidia’s complete income; which jumped from 11% in early 2025 to 18% as we speak.
Two major elements have led to the accelerated development in Mellanox’s income over the previous 18 months. The primary is the rising demand for AI providers, which dictates ever-larger language fashions and which now embody trillions of processing models. These fashions require not solely the next variety of graphics processors, but in addition extra exact synchronization between them – between processors on the identical server, between completely different servers, and generally even between knowledge facilities which might be far aside. Mellanox’s processors specialise in managing this communication, so the Israeli firm’s function turns into crucial to its success.
The second purpose is an inner reminiscence restrict that burdens Nvidia’s graphics processors, forcing the corporate to compensate by accelerating communication between the assorted processors.
The Intel instance
That is exactly the place the hazard lies in relying too closely on Nvidia as such a outstanding supply of development for all the Israeli economic system. Simply as rapidly as Mellanox grew to become Nvidia’s bonanza, it might additionally lose its coveted standing. If Nvidia finds a brand new method to optimize the reminiscence of its processors, or if rivals emerge that problem it in value and reminiscence capability, it could theoretically be potential to witness a change in Mellanox’s standing.
The plain comparability is to its US rival Intel, which was the dominant firm in Israeli business and lately was compelled to put off 1 / 4 of its 12,000 staff in Israel and freeze building of two new crops in Kiryat Gat. It has additionally stopped reporting about its contribution to the Israeli economic system. In its final such report from 2022, Intel introduced that chip exports from Kiryat Gat accounted for 1.75% of Israel’s annual GDP, an all-time excessive.
The state has additionally halted its commitments to Intel. To date, the state has invested about NIS 5 billion in varied grants to Intel and pledged to speculate one other NIS 11 billion, of which it canceled a grant of NIS 1.8 billion whereas the remaining is in limbo pending developments.
So is the Israeli economic system actually depending on Nvidia? “Assuming that the faucet is turned off and Mellanox stops producing overseas, there could also be an influence on the GDP however not on the actual economic system in Israel,” says Bar Ilan College’s Prof. Gil Epstein, an economist who additionally heads the labor market division on the Taub Heart. “There will likely be some influence on tax revenues, and maybe additionally on employment, for the reason that giant improve within the variety of Nvidia staff in Israel is because of its actions right here. However this will likely be a lot much less important than any determination that Intel would possibly make right here about its manufacturing plant and three improvement facilities.”
Katz agrees. “Tech exports with out Nvidia attain 11% by way of GDP. There are about 400,000 employed right here in all kinds of firms, worldwide improvement facilities and startups and protection firms, so the tech sector is secure sufficient even with out Nvidia.”
The highway to incentives
In any case, and though Nvidia has not constructed a manufacturing unit in Israel and doesn’t make use of manufacturing employees right here, it additionally maintains particular relations with the state. In its reviews to the US SEC, it says that the tax paid in Israel reached $1.28 billion in 2025, which constitutes 4% of the community division’s income. The worth of its property elevated from $840 million in 2024 to $1.47 billion final 12 months.
In return, Nvidia expects not solely a decreased company tax (presently estimated at 9%), but in addition continued purchases of GPUs by the state, which intends to make direct and oblique purchases of 100,000 GPUs within the coming years with a complete price range of $13 billion.
Revealed by Globes, Israel enterprise information – en.globes.co.il – on August 20, 2026.
© Copyright of Globes Writer Itonut (1983) Ltd., 2026.
