Israels GDP progress displays fast-rising Nvidia income
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 develop into not solely a world phenomenon and essentially the most priceless firm on the earth, but additionally a significant engine behind the expansion of the Israeli financial system – all with out really producing a single chip in Israel itself. With 6,000 workers in Israel, Nvidia’s footprint within the financial system has develop into so massive that the Central Bureau of Statistics has produced a brand new determine for progress with out Nvidia’s exercise.
How has Nvidia’s networking division, which manufactures the precise chips in Taiwan, develop into the brand new engine of the Israeli financial system?
“Manufacturing falling from the sky”
Earlier this week, the Central Bureau of Statistics revealed Israel’s GDP progress 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 corporations however carried out from abroad manufacturing crops, progress was decrease at 14.4%.
There may be 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}, is just not 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 corporations reminiscent of Dell and HP.
However even placing the accounting rationalization apart, these figures show for all to see how necessary Nvidia is to progress and tax revenues. Israel’s items export information exhibits that “exports that didn’t cross the nation’s borders,” which is attributed principally to Nvidia and marginally to different corporations reminiscent of Camtek and Nova, stood for years at about $2 billion each quarter. Final yr 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 financial system would have contracted within the first quarter by 5.8%. Over all the earlier yr, Israeli GDP grew by 3.5%, however with out Nvidia, progress would have amounted to solely 2.1%.
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In keeping with Central Bureau of Statistics information, the hole between progress within the second quarter with out Nvidia (14.4%) and progress 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 info is with an annual comparability, between the second quarter of 2026 and the corresponding quarter final yr. Neutralizing seasonality, annual progress 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’s not associated to employment in Israel or the labor productiveness of the Israeli employee,” says Bental. “That is after all a return for Israeli information and entrepreneurship, so it is sensible to incorporate it within the nationwide accounting, but it surely doesn’t characterize 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 revealed over the previous two years and located that in contrast with official progress 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 progress originating from Nvidia is that it isn’t actually our progress – of the Israeli financial system – and attributing manufacturing carried out in Taiwan doesn’t mirror the fundamental native exercise of the financial 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 when it comes to GDP, which is at the moment about 70%, however in actuality it’s nearer to 74%.
What brought on the turnaround?
What led to the meteoric rise in export figures that don’t cross Israel’s borders is just not solely the extraordinary success of Nvidia, which is at the moment 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 keeping with Nvidia’s experiences from current 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 latest report filed by Nvidia in Could revealed that within the first quarter of 2026, Mellanox income reached nearly $15 billion. It’s not nearly fast progress and the corporate’s fastest-growing division, but additionally a few sharp enhance in Mellanox’s share of Nvidia’s whole income; which jumped from 11% in early 2025 to 18% as we speak.
Two predominant components have led to the accelerated progress 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 items. These fashions require not solely the next variety of graphics processors, but additionally extra exact synchronization between them – between processors on the identical server, between completely different servers, and generally even between information facilities which might be far aside. Mellanox’s processors focus on managing this communication, so the Israeli firm’s function turns into important to its success.
The second motive is an inside 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 progress for all the Israeli financial system. Simply as shortly as Mellanox grew to become Nvidia’s bonanza, it might additionally lose its coveted standing. If Nvidia finds a brand new technique to optimize the reminiscence of its processors, or if rivals emerge that problem it in value and reminiscence capability, it might 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 workers in Israel and freeze development of two new crops in Kiryat Gat. It has additionally stopped reporting about its contribution to the Israeli financial 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 take a position one other NIS 11 billion, of which it canceled a grant of NIS 1.8 billion whereas the remainder is in limbo pending developments.
So is the Israeli financial system actually depending on Nvidia? “Assuming that the faucet is turned off and Mellanox stops producing overseas, there could also be an impression on the GDP however not on the actual financial system in Israel,” says Bar Ilan College’s Prof. Gil Epstein, an economist who additionally heads the labor market division on the Taub Middle. “There might be some impression on tax revenues, and maybe additionally on employment, because the massive enhance within the variety of Nvidia workers in Israel is because of its actions right here. However this might be a lot much less vital than any choice that Intel would possibly make right here about its manufacturing plant and three improvement facilities.”
Katz agrees. “Tech exports with out Nvidia attain 11% when it comes to GDP. There are about 400,000 employed right here in all kinds of corporations, worldwide improvement facilities and startups and protection corporations, so the tech sector is steady 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 staff right here, it additionally maintains particular relations with the state. In its experiences 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 yr.
In return, Nvidia expects not solely a diminished company tax (at the moment estimated at 9%), but additionally 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.
