Israel's Growth Data Shows a National Economy Leaning on a Single Chip Company

Israeli growth figures published this week revealed how much of the country's expansion now depends on one foreign company. Globes reported that the data exposed Israel's reliance on Nvidia, and that the exposure differs in kind from the decades when Intel dominated the local technology industry. Intel built and ran fabrication plants inside Israel. Nvidia's chips are manufactured abroad and the products never physically pass through the country, so Israel captures research and development activity and the associated tax receipts, but not the factory, equipment, or workforce that a chip fabrication plant would bring. Globes also raised the question of whether the company will receive state incentives.

The concentration is not confined to one country. The Financial Times, in a column titled "The slow sucking sound of AI", examined whether spending on artificial-intelligence infrastructure is drawing capital away from other investment. The same question applies to Japan's export data, where semiconductor equipment shipments rose 49.1% by value in July while total export volumes rose 5.2%.

A similar pattern showed up in equity markets on Wednesday. The S&P 500 rose 0.43% while technology shares underperformed, and gains in health care and cyclical sectors accounted for most of the index's rise.