When do AI investments pay off? Evidence from stock market responses to innovation and alliances

Purpose This paper aims to investigate the impact of artificial intelligence (AI) investment announcements on the market value of the firm, according to a novel perspective informed by strategic and innovation management theories. In this vein, we focus on how different AI investment types, specifically those with innovative attributes and those executed through strategic alliances, influence firm market reactions differently. Design/methodology/approach We employ the event study methodology on a sample of 88 AI investment announcements from 34 firms listed on the S&P 500 index, over the period 2020–2024. An additional 19 announcements were included for robustness tests, expanding the total sample to 107. Findings Our findings reveal that AI investment announcements in isolation (even when innovative) fail to yield significant abnormal returns. In contrast, AI investments implemented within a strategic alliance framework and the interaction between innovative features and the collaborative investment mode elicit a positive market reaction. Originality/value This paper makes a unique contribution to the literature on innovation management and firm valuation by delineating the multifaceted impact of AI investment announcements on the firm’s market value. Unlike prior studies on IT investments, our analysis demonstrates that only the combination of innovation within strategic alliances is awarded by the market. By integrating perspectives from several innovation management classic theories, the study provides a novel understanding of how AI investments announcements foster market value creation, informing both academic debates and practitioners’ strategic decision-making.