The rise of emotional intelligence technology and the recent debate about the possibility of a “sentient” artificial intelligence (AI) urge the need to study the role of emotion during people’s interactions with AIs. In customer service, human employees are increasingly replaced by AI agents, such as chatbots, and often these AI agents are equipped with emotion-expressing capabilities to replicate the positive impact of human-expressed positive emotion. But is it indeed beneficial? This research explores how, when, and why an AI agent’s expression of positive emotion affects customers’ service evaluations. Through controlled experiments in which the subjects interacted with a service agent (AI or human) to resolve a hypothetical service issue, we provide answers to these questions. We show that AI-expressed positive emotion can influence customers affectively (by evoking customers’ positive emotions) and cognitively (by violating customers’ expectations) in opposite directions. Thus, positive emotion expressed by an AI agent (versus a human employee) is less effective in facilitating service evaluations. We further underscore that, depending on customers’ expectations toward their relationship with a service agent, AI-expressed positive emotion may enhance or hurt service evaluations. Overall, our work provides useful guidance on how and when companies can best deploy emotion-expressing AI agents.