I'd tend to agree with the above replies. The HOI3 AI is certainly not spectacular, but its flaws are "usually" less serious than those in HOI4 (often the exact same flaws, but the AI is less dependent on Battle Plans and other constraints, so some of the problems aren't an issue in most cases). There are a few exceptions, such as if/when Germany sends 100+ armored and motorized divisions into the mountains of central Norway to try to reach the capital from the wrong end of the country, and attrition kills more Germans than the Soviets will in the next year or two, until Germany runs itself out of Manpower.
If you place a few self-restrictions, such as not invading the UK's or Japan's home islands until you've broken their fleet or taken X amount of other territory from them, it plays out pretty well most of the time.
The AI shows moments of complete competence and moments of Artificial Idiocy. On the one hand, it will pull troops back from a threatened pocket and hold the flanks until it escapes, make spoiler attacks to prevent you from reinforcing a fight, and launch attacks on a province from multiple directions......and then on the other hand it will pull a critical unit off the front line to cover a gap somewhere else, leaving a hole where it abandoned the front, or send a pathetically slow Garrison division to complete an encirclement.....eventually. It may launch an attack at mediocre odds, or launch separate attacks from different provinces out of sync with each other (and then the second and third units sit there uselessly until they can advance to fill the frontage), and sometimes continues the attack until the original attacking unit has run itself out of Organization, but more often than not it will break off the attack when the odds turn against it. The AI is skittish when it comes to attacking forts, although it does eventually launch an attack once it gathers what it considers to be sufficient strength. On the bright side, it doesn't throw away equipment in those attacks, because HOI3 doesn't have that aspect of producing equipment separately from the brigade or division itself. Overall, it could definitely use some work, but it's generally not the nightmare that it is in HOI4.
The real down sides of the HOI3 AI is that it cannot distinguish between an Infantry division, a Garrison division, an Armored division, a Mountain division, and so on, and will happily use them interchangeably regardless of the terrain; it also has problems with tailoring a response to the magnitude of the threat, sometimes pulling a couple of Corps off the front line in one area to hunt down a lone Partisan unit in another area.
The naval and air campaigns need to be closely watched, as the AI is functional to a point, but will fail to rotate out damaged units, break off their mission, or send them back to port. Ignoring them for too long can lead to needless and expensive losses.
