Artificial intelligence (AI) has become a critical driver of firm growth, yet its effects remain theoretically ambiguous. Drawing on a dynamic capability perspective, this study examines how AI engagement shapes the likelihood of becoming a high-growth firm (HGF) using panel data from Chinese publicly listed firms. We argue that AI engagement exhibits an inverted U-shaped relationship with high-growth outcomes. At low to moderate levels, AI engagement enhances productivity, improves managerial decision-making, and generates positive signaling effects, thereby increasing firms’ growth potential. However, excessive AI engagement yields diminishing returns as over-automation undermines human collaboration, suppresses creativity, and weakens customer relationships, ultimately constraining sustained growth. We further identify firm innovation capability as a key boundary condition. Less innovative firms benefit more from early AI engagement but suffer greater performance declines at high levels of AI use, whereas innovative firms are less reliant on AI initially and better able to mitigate the negative effects of excessive AI engagement.