This study investigates the impact of AI adoption on innovation novelty within the manufacturing industry. Drawing on the concept of AI as an enabling technology, we examine how AI adoption fosters novel recombinations of manufacturing knowledge. Additionally, we examine how firms can leverage the existing knowledge base to achieve these recombinations. Our sample comprises 419,165 patents invented by U.S. manufacturing firms between 2005 and 2019. First, we find that, on average, AI adoption is associated with patent inventions that exhibit greater novelty. The result underlines AI’s pivotal role as an enabling force for innovation among end-user firms. Second, we find that the positive relationship between AI adoption and innovation novelty is stronger when firms build on more specialized, in-depth manufacturing knowledge. Complementing the first finding, this result underscores the value of integrating distant AI knowledge search with a focused domain knowledge base for effective enabling technology adoption. Third, we find that, on average, AI adoption is associated with patent inventions that exhibit higher economic value, implying a potential gain in competitive advantage for the inventor firms. Overall, our research provides insights into the implications of AI adoption in downstream application sectors, highlighting the knowledge search and knowledge base essential to facilitating novel recombinations.
