Artificial Intelligence (AI) is rapidly transforming organizational practices and enabling more sustainable business models, especially in the context of the circular economy. While its potential is widely acknowledged, empirical evidence on the factors that influence AI adoption and its actual impact on circular economy practices—particularly in the context of small and medium-sized enterprises (SMEs)—remains limited. This study investigates the drivers of AI adoption among innovative Italian SMEs and assesses how AI contributes to the implementation of circular economy strategies. Grounded in the Unified Theory of Acceptance and Use of Technology (UTAUT), the study explores the role of four key constructs—Performance Expectancy, Effort Expectancy, Social Influence, and Facilitating Conditions—in shaping AI adoption decisions. It also examines the extent to which AI adoption promotes circular economy practices. The empirical analysis is based on data collected through a structured online questionnaire distributed to 1,664 innovative SMEs across Italy, of which 52 provided complete responses. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM), a technique particularly suitable for testing complex models with small to moderate sample sizes. The findings partially validate the proposed theoretical framework. Performance Expectancy, Social Influence, and Facilitating Conditions are found to significantly influence AI adoption, while Effort Expectancy does not emerge as a significant predictor—suggesting that ease of use is less critical, possibly due to growing digital literacy or available technical support. Most importantly, the results show that AI adoption positively affects circular economy practices, supporting the view of AI as not only a technological asset but also a strategic enabler of sustainability. This study contributes to the literature by bridging the gap between technology adoption theories and circular economy research. It also offers practical insights for managers and policymakers aiming to promote digital and sustainable transitions. Emphasizing AI’s strategic value, the study encourages investment in both technological infrastructure and supportive organizational environments to foster innovation and sustainable development.