This conceptual article’s primary aim is to identify the significant stakeholders of the digital identity system (DIS) and then highlight the impact of artificial intelligence (AI) on each of the identified stakeholders. It also recommends vital points that could be considered by policymakers while developing technology-related policies for effective DIS. Design/methodology/approach–This article uses stakeholder methodology and design theory (DT) as a primary theoretical lens along with the innovation diffusion theory (IDT) as a sub-theory. This article is based on the analysis of existing literature that mainly comprises academic literature, official reports, whitepapers and publicly available domain experts’ interviews. Findings–The study identified six significant stakeholders, i.e. government, citizens, infrastructure providers, identity providers (IdP), judiciary and relying parties (RPs) of the DIS from the secondary data.Also, the role of IdP becomes insignificant in the context of AI-enabled digital identity systems (AIeDIS). The findings depict that AIeDIS can positively impact the DIS stakeholders by solving a range of problems such as identity theft, unauthorised access and credential misuse, and will also open a possibility of new ways to empower all the stakeholders. Research limitations/implications–The study is based on secondary data and has considered DIS stakeholders from a generic perspective. Incorporating expert opinion and empirical validation of the hypothesis could derive more specific and context-aware insights. Practical implications–The study could facilitate stakeholders to enrich further their understanding and significance of developing sustainable and future-ready DIS by highlighting the impact of AI on the digital identity ecosystem. Originality/value–To the best of the authors’ knowledge, this article is the first of its kind that has used stakeholder theory, DT and IDT to explain the design and developmental phenomenon of AIeDIS. A list of six significant stakeholders of DIS, i.e. government, citizens, infrastructure providers, IdP, judiciary and RP, is identified through comprehensive literature analysis.