Israel’s cybersecurity sector and the AI challenge

Rapid advances in AI capabilities will reshape Israel’s cybersecurity sector, with significant macro implications given that cyber software exports account for around 3% of GDP. AI will likely increase both the scale of cyber threats and the demand for defence, which should be a net positive for Israel at the aggregate level. But the distributional effects within Israel’s tech ecosystem will be uneven, as parts of the cybersecurity value chain become obsolete due to AI while firms that adapt become more valuable.