Israel’s GDP growth reflects fast-rising Nvidia revenue

Nvidia’s networking division is seeing an exponential rise in revenue, making it a major engine of growth for the Israeli economy, the Central Bureau of Statistics reports.

When Nvidia acquired Mellanox six years ago, few officials at the Ministry of Finance and Bank of Israel would have imagined that within a short time, the US chipmaker would become not only a global phenomenon and the most valuable company in the world, but also a major engine behind the growth of the Israeli economy - all without actually producing a single chip in Israel itself. With 6,000 employees in Israel, Nvidia's footprint in the economy has become so large that the Central Bureau of Statistics has produced a new figure for growth without Nvidia’s activity.

How has Nvidia’s networking division, which manufactures the actual chips in Taiwan, become the new engine of the Israeli economy?

"Production falling from the sky"

Earlier this week, the Central Bureau of Statistics published Israel’s GDP growth figures for the second quarter, which easily beat forecasts. GDP grew in the second quarter by 15.4% on an annualized basis, which represents an increase of 3.6% on a quarterly basis. Excluding what the Central Bureau of Statistics calls "exports that did not cross the country's borders," meaning export activity attributed to Israeli companies but carried out from overseas manufacturing plants, growth was lower at 14.4%.

There is an accounting, or even prosaic, explanation behind this separation: When Nvidia acquired Mellanox for $6.9 billion, it left the company's Yokneam operations as a separate accounting unit, so that a significant portion of the revenue is attributed to it, even though the actual production of the chips and servers, which are sold worldwide for billions of dollars, is not carried out in Israel at all. It takes place in TSMC plants in Taiwan, from where the products are exported to the world, or integrated into servers of US companies such as Dell and HP.

But even putting the accounting explanation aside, these figures prove for all to see how important Nvidia is to growth and tax revenues. Israel's goods export data shows that "exports that did not cross the country's borders," which is attributed mostly to Nvidia and marginally to other companies such as Camtek and Nova, stood for years at about $2 billion every quarter. Last year alone there was a 74% jump from 2024, with an increase of $7 billion. In the first quarter of 2026, this figure has risen to $8 billion. Without the activity of Nvidia and others, the economy would have contracted in the first quarter by 5.8%. Over the entire previous year, Israeli GDP grew by 3.5%, but without Nvidia, growth would have amounted to only 2.1%.

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According to Central Bureau of Statistics data, the gap between growth in the second quarter without Nvidia (14.4%) and growth with Nvidia (15.4%) is 1%. But economist Prof. Benjamin Bental, a senior advisor to the Aharon Institute, says a more accurate way to look at the data is with an annual comparison, between the second quarter of 2026 and the corresponding quarter last year. Neutralizing seasonality, annual growth without Nvidia was 5.5%, compared with 7.2% with the company's inclusion.

"We are receiving a product that falls on us from the sky. It is not related to employment in Israel or the labor productivity of the Israeli worker," says Bental. "This is of course a return for Israeli knowledge and entrepreneurship, so it makes sense to include it in the national accounting, but it does not represent an improvement in the quality of life or productivity of the Israeli worker."

Leader Capital Markets chief economist Jonathan Katz examined the growth figures published over the past two years and found that compared with official growth of 10%, without the activities of Nvidia and the like, the figure would have been just 6.6%.

He says, "The meaning of growth originating from Nvidia is that it is not really our growth - of the Israeli economy - and attributing production performed in Taiwan does not reflect the basic local activity of the economy. Just as the state inflates the growth figures because of a company with the majority of its activity not in Israel, so it shrinks the debt figures in terms of GDP, which is currently about 70%, but in reality it is closer to 74%.

What caused the turnaround?

What led to the meteoric rise in export figures that do not cross Israel’s borders is not only the extraordinary success of Nvidia, which is currently trading at a market cap of $5.3 trillion, but the growing importance of its Israeli division, based on Mellanox’s operations. According to Nvidia’s reports from recent years, until the end of 2024, Mellanox’s quarterly revenue averaged around $3 billion. But starting early 2025, there was a sharp jump in the division’s quarterly revenue from $5 billion in the first quarter to $11 billion in the fourth quarter.

The most recent report filed by Nvidia in May revealed that in the first quarter of 2026, Mellanox revenue reached almost $15 billion. It’s not just about rapid growth and the company’s fastest-growing division, but also about a sharp increase in Mellanox’s share of Nvidia’s total revenue; which jumped from 11% in early 2025 to 18% today.

Two main factors have led to the accelerated growth in Mellanox’s revenue over the past 18 months. The first is the growing demand for AI services, which dictates ever-larger language models and which now include trillions of processing units. These models require not only a higher number of graphics processors, but also more precise synchronization between them - between processors on the same server, between different servers, and sometimes even between data centers that are far apart. Mellanox’s processors specialize in managing this communication, so the Israeli company’s role becomes critical to its success.

The second reason is an internal memory limit that burdens Nvidia's graphics processors, forcing the company to compensate by accelerating communication between the various processors.

The Intel example

This is precisely where the danger lies in relying too heavily on Nvidia as such a prominent source of growth for the entire Israeli economy. Just as quickly as Mellanox became Nvidia's bonanza, it could also lose its coveted status. If Nvidia finds a new way to optimize the memory of its processors, or if competitors emerge that challenge it in price and memory capacity, it would theoretically be possible to witness a change in Mellanox's status.

The obvious comparison is to its US rival Intel, which was the dominant company in Israeli industry and in recent years was forced to lay off a quarter of its 12,000 employees in Israel and freeze construction of two new plants in Kiryat Gat. It has also stopped reporting about its contribution to the Israeli economy. In its last such report from 2022, Intel announced that chip exports from Kiryat Gat accounted for 1.75% of Israel’s annual GDP, an all-time high.

The state has also halted its commitments to Intel. So far, the state has invested about NIS 5 billion in various grants to Intel and pledged to invest another NIS 11 billion, of which it canceled a grant of NIS 1.8 billion while the rest is in limbo pending developments.

So is the Israeli economy really dependent on Nvidia? "Assuming that the tap is turned off and Mellanox stops producing abroad, there may be an impact on the GDP but not on the real economy in Israel," says Bar Ilan University’s Prof. Gil Epstein, an economist who also heads the labor market department at the Taub Center. "There will be some impact on tax revenues, and perhaps also on employment, since the large increase in the number of Nvidia employees in Israel is due to its activities here. But this will be much less significant than any decision that Intel might make here about its manufacturing plant and three development centers."

Katz agrees. "Tech exports without Nvidia reach 11% in terms of GDP. There are about 400,000 employed here in a wide variety of companies, international development centers and startups and defense companies, so the tech sector is stable enough even without Nvidia."

The road to incentives

In any case, and although Nvidia has not built a factory in Israel and does not employ production workers here, it also maintains special relations with the state. In its reports to the US SEC, it says that the tax paid in Israel reached $1.28 billion in 2025, which constitutes 4% of the network division's revenue. The value of its assets increased from $840 million in 2024 to $1.47 billion last year.

In return, Nvidia expects not only a reduced corporate tax (currently estimated at 9%), but also continued purchases of GPUs by the state, which intends to make direct and indirect purchases of 100,000 GPUs in the coming years with a total budget of $13 billion.

Published by Globes, Israel business news - en.globes.co.il - on August 20, 2026.

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