U.S.-Israel Geopolitical Synergy: Unlocking High-Conviction Investment Opportunities in Defense and Tech

The U.S.-Israel defense and technology partnership has evolved into a cornerstone of geopolitical and economic strategy, driven by shared security interests and complementary innovation ecosystems. With the passage of the 2025 Act and a surge in private and public funding, investors now face a unique window to capitalize on high-conviction opportunities in both Israeli tech and U.S. defense contractors.

Defense Sector: A $150 Million Annual Catalyst for Innovation

The 2025 Act, introduced by Representatives Joe Wilson and Donald Norcross, authorizes a $150 million annual program through FY30 to counter unmanned systems, with additional $50 million yearly for emerging technologies like AI, cybersecurity, and quantum computing. This legislative framework not only strengthens Israel's layered defense capabilities but also creates a predictable funding stream for U.S. contractors and Israeli firms.

A prime example is Rafael Advanced Defense Systems, which secured a $5.2 billion U.S.-funded contract to upgrade Israel's Iron Dome, David's Sling, and Iron Beam systems. Rafael's expertise in directed-energy weapons and missile interception positions it as a critical player in the global defense market. U.S. firms like Raytheon Technologies and Lockheed Martin, which have long collaborated with Israeli partners, are also likely to benefit from expanded joint R&D initiatives under the Act.

Moreover, the establishment of a U.S. Defense Innovation Unit in Israel and potential inclusion of Israel in the National Technology Industrial Base (NTIB) could further integrate Israeli firms into U.S. defense supply chains under the 2025 Act. This institutional alignment suggests that investors should prioritize companies with dual-use technologies-those applicable to both civilian and military applications-to capture cross-sector growth.

Tech Sector: Record M&A and Capital Concentration Signal Strategic Shifts

The Israeli tech ecosystem has demonstrated remarkable resilience in 2025, with a Startup Nation Central report showing $9.5 billion raised in the first half of the year across 367 private rounds-a 58% increase in capital compared to the prior six months. While the number of funding rounds has declined, the average deal size has ballooned, with 13 rounds exceeding $100 million. Notable examples include Safe Superintelligence's $2 billion Series B and Cyera's $500 million raise, reflecting investor confidence in scalable, high-impact solutions, as that report notes.

Simultaneously, M&A activity has hit record levels, with $71 billion in deals recorded in the first three quarters of 2025 according to a PR Newswire release. Cybersecurity remains the dominant sector, accounting for 58% of Q3 M&A value alone. High-profile acquisitions like Palo Alto Networks' $25 billion purchase of CyberArk and Wiz's $32 billion buyout underscore the sector's strategic importance, as the PR Newswire release highlights. For investors, this trend highlights the value of Israeli startups with proprietary IP in AI-driven threat detection, encryption, and cloud security.

Investment Strategy: Bridging Geopolitics and Innovation

To capitalize on this dynamic landscape, investors should adopt a dual-pronged approach:
1. Israeli Tech Exposure: Target startups with U.S. market access and partnerships with defense-focused entities. Companies like Rapyd (fintech infrastructure) and Wiz (cloud security) exemplify the potential for rapid scaling and acquisition.
2. U.S. Defense Contractors: Prioritize firms with established ties to Israeli innovation, such as Northrop Grumman (collaborating on AI for autonomous systems) or Boeing (working on counter-drone tech). These firms stand to gain from expanded joint ventures under the 2025 Act.

The BIRD Foundation's role in fostering joint U.S.-Israel R&D projects also offers a roadmap for identifying under-the-radar opportunities in areas like autonomous systems and energy security, as discussed in an e-IR article. Additionally, the NTIB's potential inclusion of Israel could unlock access to U.S. defense contracts for Israeli firms, creating a flywheel of growth.

Conclusion

The U.S.-Israel partnership is no longer just a geopolitical alliance-it is a $150 million-a-year engine of technological and economic co-creation. For investors, the key lies in aligning with companies that sit at the intersection of national security and disruptive innovation. As funding concentrates in fewer, larger deals and M&A accelerates, the next decade promises outsized returns for those who recognize the strategic value of this unique ecosystem.