IntroductionThis study examines the effects of Artificial Intelligence (AI) capabilities and entrepreneurial competency on Small and Medium Enterprise (SME) performance through the mediating role of strategic intelligence in SMEs operating in Malaysia and Saudi Arabia. Grounded in Resource Orchestration Theory and Core Competency Development Theory, the study explores how AI integration skills, smart decision-making abilities, innovativeness, and risk management competencies contribute to enhanced organizational performance in an increasingly digital business environment.MethodsA cross-sectional quantitative research design was adopted. Data were collected from 320 SMEs in Malaysia and Saudi Arabia using a structured questionnaire. The measurement model and structural relationships were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The study examined direct relationships between AI capabilities, entrepreneurial competency, strategic intelligence, and SME performance, as well as the mediating effect of strategic intelligence.ResultsThe findings reveal that both AI capabilities and entrepreneurial competency have a significant positive impact on strategic intelligence and SME performance. Furthermore, strategic intelligence was found to significantly mediate the relationship between AI capabilities, entrepreneurial competency, and SME performance. These results indicate that SMEs with stronger AI-driven capabilities and entrepreneurial competencies are more likely to develop higher strategic intelligence, which in turn enhances overall organizational performance.DiscussionThe study contributes to the growing body of literature on AI-driven organizational capabilities by providing empirical evidence from developing economies, specifically Malaysia and Saudi Arabia. The results highlight the importance of integrating AI competencies with entrepreneurial skill development to improve strategic decision-making and business competitiveness. Practically, the findings suggest that SME managers and policymakers should prioritize AI adoption and entrepreneurial capability development as key strategies for improving innovation, resilience, and long-term performance in SMEs.