Artificial intelligence(AI) has great potential to solve the problems of uneven and insufficient development of China’s service industry. This paper takes a micro-firm perspective and starts from the perspective of new quality productivity to examine the impact of AI on the total factor productivity (TFP) of service firms and its underlying mechanisms. The study finds that the application of AI helps to improve the TFP of service firms. The mechanism analysis shows that the application of AI enhances the TFP of firms through the key channel of promoting new quality productivity development. The heterogeneity analysis shows that the TFP of production service firms is more significantly affected by AI than that of life service firms. This paper refines and enriches the theoretical understanding of the impact mechanism of AI practical implications for promoting the healthy development of service firms, driving service innovation, accelerating the development of new quality productivity, and achieving high-quality economic growth.