Purpose: Artificial intelligence (AI) has been used in the workplace for years. There are compulsory or elective AI courses in some universities for students to enroll in. With the wide adoption of AI in many industries now, employers also expect students to make good use of AI to enhance their work productivity and efficiency. Hence, the purpose of this study is to examine the relationship between AI literacy and perceived student employability. Design/methodology/approach: The purposive sampling method was used in a higher educational institution in Hong Kong. About 208 valid responses were obtained from university students. Partial least square structured equation modeling was used in the analysis. Findings: It was found that acceptance of using AI could be determined by perceived usefulness of AI and trust in AI. Attitude toward AI could be influenced by acceptance of using AI. Attitude toward AI is also found to be associated with AI literacy, which affects internal and external employability. Students with more perceived AI knowledge could find it easier to get jobs. Originality/value: This study contributes to a better understanding of the relationship between perceived AI literacy and employability. Higher education should also consider how to prepare students for a new generation of jobs with AI competence as requirements by reassessing their curricula.