This paper aims to investigate how investment in artificial intelligence interacts with automation-related knowledge risks to shape the resilience of small- and medium-sized enterprises in the Italian context. The rapid advancement of digital transformation requires an extensive understanding of the link between innovative technologies, such as artificial intelligence, and the management of knowledge risks linked to automation, notably related to improving the competitive advantage of small- and medium-sized enterprises. This study employs knowledge risk theory to investigate how investments in artificial intelligence, alongside the challenges introduced by automation, collectively influence organizational resilience and innovation capacity. The empirical foundation of this research is based on secondary data collected across 20 Italian regions and various industries. The dataset was obtained from Confartigianato, a leading association of small- and medium-sized enterprises in Italy. The data were then analyzed using a quantitative approach. The results showed that areas with elevated automation-related knowledge risks are more inclined to invest in artificial intelligence, suggesting a reactive rather than proactive investment approach. The results also highlight varied geographical patterns related to investment levels, risk exposure, and digital readiness, with significant discrepancies in digital adoption and the critical role of knowledge risk as an intermediary factor in the link between artificial intelligence investment and organizational resilience, suggesting that beneficial outcomes are contingent on proficient risk management. This study aims to make a substantial contribution to the current literature on knowledge risk by investigating its application in the context of artificial intelligence and automation deployment in small- and medium-sized enterprises, thereby informing management and regulatory approaches.