In the contemporary landscape of the knowledge economy, businesses are navigating a terrain where intellectual capital and information assets are fundamental drivers of success. This paper explores business strategy formulation within this context, particularly emphasizing the pivotal role of artificial intelligence (AI) as both an enabler and a disruptor. AI emerges as a transformative force reshaping how businesses perceive, process, and utilize knowledge. However, the integration of AI into business strategy poses challenges and considerations. Successful formulation of business strategy in the knowledge economy requires a multifaceted approach. It involves fostering a culture of innovation and knowledge sharing within the organization, investing in AI capabilities and talent development, and establishing strategic partnerships to access external expertise and resources. Navigating the complexities of the knowledge economy demands businesses to rethink their strategic approaches and embrace AI as a core component of their strategy formulation process. The activity-based and the resource-based views are introduced as the building blocks of our approach. By leveraging AI technologies effectively, businesses can harness the power of knowledge to drive innovation, create value, and maintain a competitive edge in an increasingly dynamic and interconnected global marketplace. The paper, theoretical in nature, explores the impact of AI in the strategy formulation process.