The purpose of this study is to investigate the moderating role of digital marketing strategies on innovation through Artificial Intelligence (AI) mediating impact in Small and Medium Enterprises within Saudi Arabia. Advanced analytics tools analyzed data from KSA SMEs to establish the role of AI, customer behavior, and experiences in product and process innovation. Artificial intelligence boosts product and process innovation with unconventional customer knowledge. Integrating AI combined with digital marketing to improve decisions and efficiency, to increase understanding of customer dynamics for sustaining growth and promoting collaborations. Using AI-empowered digital marketing strengthens Saudi SMEs advancement by promptly reacting to market motions. Sustainability practices attract the environmentally conscious consumer. This research provides actionable insights for SMEs who want to employ digital marketing and AI strategies and contribute to building an economic environment in Saudi Arabia.