Survey finds AI adoption spurring shift in tech hiring from software to hardware

The wave of layoffs that has shaken Israel’s vaunted tech industry in recent weeks has sparked fears that artificial intelligence is curbing hiring and replacing jobs in the workplace. However, a survey published Tuesday indicated that AI is not a harbinger of the demise of the sector, but it is driving a shift in focus.

The survey by the Israel Innovation Authority found that despite widespread job cut announcements, the overall number of tech employees in the first half of the year remained largely stable.

But while the overall number of jobs was unaffected, an analysis of the High-Tech Employment survey points to stark sectoral divides, with hiring and layoff rates varying widely across the industry.

Software companies continue to cut their workforce and lower costs amid rapid AI advances, while hardware, chip, and deep-tech companies continue to expand and hire at a faster rate.

In late July, Israeli workplace software company Monday.com announced plans to cut as many as 620 employees, or 20% of its workforce, as it remodels its strategy and operations to adapt to the era of artificial intelligence and automation.

“We are seeing a clear divide between software sectors, which are undergoing significant adjustments in response to technological changes and the adoption of artificial intelligence, and deep-tech fields, including semiconductors, computing infrastructure, defense technologies, and others, which continue to demonstrate strong demand for employees and serve as significant engines of growth,” said Israel Innovation Authority CEO Dror Bin. “We are not seeing a high-tech industry that is weakening, but one that is changing rapidly.”

“We already understand that the story of 2026 is not how many employees are being laid off, but which skills the market is seeking,” Bin remarked.

The IIA, together with consulting firm Zviran, conducted the employment survey in the second half of June 2026 among 210 tech companies representing about 130,000 workers. The survey reflects trends among companies with more than 50 employees, which collectively account for more than 80% of tech workers.

While the survey showed AI was not the primary driver of widespread job cuts, increased adoption of the emerging technology was reshaping the workplace.

As more companies implement AI tools at higher rates and learn to manage more work with fewer employees, the technology has been gradually gaining weight in decisions over hiring and layoffs.

Of the tech companies surveyed in June, 50 percent reported that AI had a substantial impact on planned layoffs, up from 29% in a similar survey in December 2025.

The share of companies reporting broad adoption of AI in their products increased from 21% to 30% within six months. At the same time, the share of companies that reduced hiring as a result of AI adoption rose from about 3% to 10%.

And yet only 7% of the surveyed companies cited AI as the main reason for workforce reductions, up moderately from 5% in December, while business efficiency measures remained the primary driver.

In the first six months of 2026, tech companies recruited an average of 8% of their workforce, while laying off only 2.8%. At the same time, 4.3% left their jobs voluntarily, primarily due to employment alternatives at other companies or personal circumstances, the IIA said.

The figures are in line with other data on the labor market. A total of 18,000 job vacancies were recorded in the technology sector in June, compared with about 15,000 job seekers during the same month, according to Central Bureau of Statistics and Employment Service data.

Across sectors, the biggest layoffs in the first half of 2026 were recorded among software companies, with an average layoff rate of 6.6% of the workforce. Against this, among hardware companies, the layoff rate stood at 1.1%, while pharmaceutical and biomedical companies reported a layoff rate of 2.7%.

The IIA explained that software companies are facing increased competitive pressure from AI advances and a strong shekel. Meanwhile, hardware companies are benefiting from productivity gains, and some are also seeing increased demand for their products, driven by a rising need for chips, computing infrastructure, and energy solutions to power AI systems.

“An employee leaving a software company cannot always immediately transition into a position opening at a hardware or semiconductor company, because the required knowledge, experience, and specialization differ,” the IIA said. “As a result, even when the total number of people employed in the industry remains stable, some employees may face genuine difficulty reentering the labor market in the short term.”

The survey data showed that layoffs were three times the industry average among medium-sized companies, employing between 50 and 200 people. These companies accounted for nearly half of the firms that carried out extensive layoffs of at least 5% of their workforce.

Looking ahead, more than a third of tech companies said they were planning to scale back hiring in the second half of 2026, nearly double the share recorded in the previous survey in December. The planned hiring rate among surveyed companies declined from 7.2% to 5.9%. Among companies expecting to make broad layoffs, the proportion of workers they plan to cut increased from 4.1% to 6.4% from the December survey.

“Companies are reassessing which roles they require, which tasks can be performed using AI tools, and which new skills will be required of the employees they recruit in the coming years,” the IIA said. “As the pace of technological change accelerates, the flexibility, entrepreneurship, and adaptability of Israel’s human capital will become increasingly important to maintaining Israel’s competitive advantage and the resilience of its high-tech industry.”