<p>This study explores the intersection of Joseph Schumpeter’s Innovation Theory and the integration of Artificial Intelligence (AI) in higher education, specifically focusing on disruptive and incremental innovation, institutional transformation, and strategic policy adaptation. AI can potentially reshape pedagogical models, administrative efficiency, and knowledge production, aligning with Schumpeter’s concept of creative destruction. This paper critically examines how universities navigate AI-driven transformations, balancing technological advancements with regulatory and ethical considerations. The study investigates how AI fosters interdisciplinary collaboration, influences academic productivity, and creates new economic models within the higher education sector. By positioning AI adoption within Schumpeterian economics, this research provides a theoretical foundation for institutional adaptation strategies, offering insights for educators, policymakers, and researchers in leveraging AI for sustainable academic innovation.</p>