The integration of Artificial Intelligence (AI) and the Internet of Things (IoT) has significantly transformed various industries, presenting both challenges and opportunities. This study conducts a comprehensive literature analysis to examine the impact of AI on enhancing IoT applications. It addresses important questions including the advancements, difficulties, opportunities, and future trends related to AI in this context. A systematic approach, following the guidelines of PRISMA, was employed to identify, select, and examine relevant academic articles published between 2016 and 2024. By carefully collecting and combining data from selected research, comprehensive insights into the current status of AI-integrated IoT applications were gained. The aim of this study is to provide a comprehensive understanding of how AI is revolutionizing IoT applications. It explores significant advancements, challenges, opportunities, and future directions. Through the utilization of a methodical approach, relevant data were collected and combined to facilitate a comprehensive examination of AI-driven advancements in different sectors. The results reveal a situation full of potential for transformation, showcasing advancements in AI in areas such as manufacturing, healthcare, home automation, urban planning, and cybersecurity. These developments emphasize the vital role of AI in enhancing operational efficiency, improving healthcare delivery, setting higher standards for residential life, and fostering sustainable urban expansion. However, it is important to address concerns around data privacy and security, the interoperability of different systems, limitations in scalability, and the lack of skilled workers in order to fully take advantage of the prospects provided by AI-powered IoT applications. Overall, the combination of AI and IoT holds significant potential for driving technological advancement and fostering interconnected and sustainable solutions in several domains. By addressing obstacles and leveraging advantages, organizations can harness the vast potential of AI-integrated IoT applications, propelling the era of digital advancement and societal development.