Artificial intelligence (AI) is ubiquitous and there are open questions regarding whether firms can realize financial benefits from innovations involving the technology. At present, there appears to be some empirical ambiguity regarding the value proposition of AI innovation for firms’ financial performance. Although empirical research at the firm level is lacking, evidence at other levels of analysis highlights this ambiguity, with some studies finding a positive effect of AI innovation and others finding no effect or even a negative effect on important outcomes. In this study, we draw on competitive dynamics theory to conceptualize and test the relationship among AI innovation, new product and service introduction, and firm performance in inter-firm rivalry. Specifically, we argue and find the complementary effect of focal firms’ AI innovation and their new product and service introduction in attaining superior firm performance. We then provide evidence that rival firms with AI innovation impede focal firms’ financial performance when they introduce new products and services. Furthermore, the financial impact of AI innovation and new product and service introduction is more pronounced in munificent, dynamic, and concentrated business environments. This study provides support for the complementary role of AI innovation and underscores the need for IS research to consider the commercialization of AI innovation, the actions of industry rivals and conditions in the industry environment to understand the business value of AI innovation.
