<![CDATA[Climate transition has increased investors' concerns about carbon risk, yet evidence remains limited on how firms' technological capabilities shape market responses, particularly in emerging markets. This study examines the effect of carbon risk on stock performance and the moderating role of AI innovation among non financial companies listed on the Indonesia Stock Exchange during 2016 - 2024. Drawing on Asset Pricing Theory, Signaling Theory, and Stakeholder Theory, this study argues that AI innovation reduces investors' uncertainty by enhancing firms' environmental management and signaling stronger technological capability. Indonesia provides a relevant setting because its carbon regulation, sustainability reporting, and AI adoption are still evolving. The results show that carbon risk is marginally associated with lower stock returns and increases stock volatility, while AI innovation significantly weakens the positive effect of carbon risk on stock volatility but has no direct effect on stock returns. This study contributes to the climate finance literature by providing evidence from an emerging market and demonstrating that AI innovation serves as a strategic mechanism for mitigating the financial impact of carbon-transition risk. The findings offer implications for managers, investors, and policymakers in supporting a more resilient low-carbon transition]]>
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