AI boom may leave Israel behind due to shortage of funds and talent, report warns

Research by RISE Israel and Google shows that local AI tech startups attract less investment than in US and Europe, and face a lack of employees with advanced academic degrees

Sharon Wrobel is a tech reporter for The Times of Israel.

Illustrative image of innovation, AI, machine learning and robots (ipopba; iStock by Getty Images)
Illustrative image of innovation, AI, machine learning and robots (ipopba; iStock by Getty Images)

Israel is falling behind the US and Europe when it comes to pulling in investments in startups that develop artificial intelligence-based technologies and is poised to face a shortage in human capital in the field, a research report by the RISE Israel institute and Google Israel warned.

Israel still ranks among the top 10 ecosystems for AI, but it is far from unlocking the full potential of the revolutionary technology as competition in the global AI race intensifies. Israel is attracting lower growth rates in overall AI investments, although a larger proportion of its startups are focused on developing the technologies, according to the report by RISE Israel, formerly known as Start-up Nation Policy Institute (SNPI), together with Google.

The scope of investments in the field of AI in the US and Europe continued to soar over the past two years despite the global economic downturn, while in Israel in 2023 it dropped to a level last seen in 2018 after peaking in 2021, the report found.

“The AI revolution is a fait accompli, and Israel can’t afford not to be a leading country in the field,” said RISE Israel chairman Prof. Eugene Kandel. “Beyond the importance of maintaining Israel’s competitiveness in the global race, the adoption of artificial intelligence can dramatically improve the quality of life of Israeli citizens.”

Over the past year, industry leaders and tech entrepreneurs have raised concerns that Israel could miss the global AI wave and needs to implement a long-term strategy to allocate a significant amount of money and resources to boost education and academic research, encourage startups, and provide the infrastructure and cheap computational power needed to run AI models.

Artificial intelligence — the tech that gives computers the ability to learn — has been around since the 1950s. But over the last decade the field has enjoyed a renaissance made possible by the huge amount of data available online and the higher computational power of chips. Advances in the field over the last 10 years have enabled computers to analyze datasets and find useful patterns to solve problems, with the machine often outwitting the human brain.

AI21 Labs co-founders (from left to right): Uri Goshen, Prof. Amnon Shashua, and Prof. Yoav Shoham. (Roei Shor)

The more recent hype around generative AI (GenAI), which can create complex content that resembles human creativity, in the likes of OpenAI’s ChatGPT and Google’s Bard chatbot, is setting the world abuzz with potential and expectation.

Even though investments in Israeli startups developing GenAI technologies have increased by about 85% from 2020 to 2023, the figure falls far short of the 900% surge seen in the US and 300% increase in European startups, according to the report on the AI industry in Israel.

Israel is home to 2,300 AI companies, which account for a quarter of local tech firms, of which more than 60% are software companies, according to the data presented in the report.

Three of these startups were included in the 100 most promising AI startups of 2023, listed by New York-based data company CB Insights: Exodigo, a physical infrastructure startup; Visionary AI, in the field of image processing; and AI21 Labs, a natural language processing startup that has created generative AI models.

About 50% of the local startups established in 2023 use AI technologies for healthcare, cybersecurity, autonomous driving, and other purposes. In life sciences, half of the digital health companies use AI technologies, compared to one in ten medical devices companies. In agritech, the two subsectors that have the highest percentage of AI companies are automation & robotics (46%) and smart farming (39%).

As of April 2024, there are more than 100 multinational companies with R&D operations in the field of AI in Israel. Earlier this year, Google launched a $4 million fund to provide a lifeline to cash-strapped startups developing AI technologies as they struggle to raise capital during the ongoing war with Hamas, which started with the terror group’s devastating October 7 onslaught in southern Israel.

Google for Startups campus in Tel Aviv. (Courtesy)

In the current challenging environment, a key concern raised in the report that could prevent Israel from taking its place at the crest of the AI wave is the expected shortage of human capital due to a dwindling number of graduates with advanced academic degrees on which the industry is relying.

Over the past decade, Israel has been grappling with a shortage of tech talent relative to the rapidly growing demand for computer scientists, programmers, and hardware engineers.

In 2023, Israel was ranked first globally among countries with the highest concentrations of AI talent, followed by Singapore and South Korea, according to the AI Index annual report by Stanford University. Israel has the highest percentage of data scientists and machine learning experts earning above $100,000, according to an OECD survey.

“This suggests either a high demand for artificial intelligence professionals in Israel or a limited supply of talent in this field,” the report said.

Top researchers like Hebrew University Prof. Amnon Shashua, who is the founder of Mobileye, a maker of self-driving technologies, and co-founder of AI21 Labs; and Shimon Ullman, a professor of computer science at the Weizmann Institute of Science, are globally renowned for their contributions to the fields of AI and computer vision.

“AI professions, which rely more on advanced academic degrees, face a greater scarcity of human resources than Israeli high-tech in general,” it was noted in the report.

An illustrative image of robot hackers; the use of artificial intellicence in cybersecurity (Iaremenko; iStock by Getty Images)

Two-thirds of employees with an academic background working in AI-related positions hold an advanced degree (MA or PhD), compared to 12.4% of software developers, according to the report.

While the number of BA graduates in computer science, mathematics, and statistics grew by 60% between 2017 and 2022, with 4,400 graduates in 2022, the number of MA graduates amounted to less than 700 in that same year. Meanwhile, the number of PhD graduates stagnated in recent years to around 100 per year. What is even more worrying is that about 15% of MA graduates and 21% of PhD graduates in computer science move abroad, according to the report.

“While Israel excels in R&D and has world-class talent in ICT (information and communication technologies), it lags in government strategy, infrastructure, and operating environment – key elements in maintaining its AI leadership and the integration of AI technologies in the daily lives of Israel’s citizens,”  the report cautioned.

With governments around the world racing to formulate national policies to regulate AI tools, Israel started to work on a long-term AI strategy, but that effort is now on hold.

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