Artificial Intelligence and STEM undergraduates are concerned that studying their needs and preferences is critical to initiating AI literacy competence because there is a gap between the link of needs and preferences of user requirements. Many professionals and practitioners believe that this century is described by its rapid information and communication technology development with state-of-the-art- facilities in AI because these technologies turn pervasive interactions, for instance, machine learning, deep learning, and mobile learning. Further, in higher education, private campuses began to use AI-enabled technologies to leverage students’ personalized learning and reduce their teaching and administrative work while offering more learning support and interactive learner experiences. This phenomenon leads to higher education in a new arena of AI in education (AIED). With these growing concerns over some periods, the importance of literacy in numerous perspectives, for instance, information, visual, media, computer, and digital are paying attention but not AI literacy. Hence, there is an urgent need to investigate STEM undergraduates’ obstacles to learning in an AI environment and related determinants to solve while enhancing their skills, knowledge, and wisdom in AI. Hence, this paper intends to bridge the gap by mainly recognizing the significant contribution of AI literacy towards teaching and learning in education. For that purpose, the main object of this paper is to observe and document machine learners’ obstacles encountered during the AI learning environment and their process without skills, knowledge, and wisdom of AI literacy. Also, it identifies available opportunities for further development of hidden areas of AI literacy. However, significant numbers of stakeholders attached to education are not well aware of how AI functions and opt for these facilities in teaching, learning, and research. For that purpose, this study was carried out based on a case study with a qualitative research design with 30 undergraduate students who follow STEM programs in private campuses in Sri Lanka and are engaged in virtual learning environments. As a result, the research findings reflected that AI literacy has significant values on perceptions of the use of AI for teaching and learning, self-efficacy in learning AI, its causes and solutions, interlinks, and benefits concurrently. Finally, the study recommends that examinations and promotion of the power of AI literacy are equally important.