Just to be clear there isn't "no" AI, but very weak AI, little challenge - a punching bag for testing game mechanics against. Still, the AI does try, it expands a bit and sometimes declares war and sends hordes of peasants at you. It doesn't really do research or unit design or diplomacy or magic or much exploring/adventuring however, just produces some fodder for you to destroy.
My understanding is the AI will be gradually improved throughout Beta 2, partly based on tactics seen in multiplayer (which starts with Beta 2). It'll be a more complete game than we currently have with graphics, improved game balance, caravans, ships, etc, it's supposed to be the first version of beta that's actually fun, but it will still be missing some things such as tactical battles.