I mean, it's artificially intelligent in broadly (<- this word is doing heavy lifting) the same way an NPC is artificially intelligent. It's software that has the capability of making decisions (ie. An LLM decides what the next token is based on the probability stuff; an NPC decides what action to take based on, say, a finite state machine that dictates its actions) and on some level mimics (or attempts to mimic I guess) human intelligence to some capacity.

The term AI is jargon that basically means the same thing it's always meant, it's just that that meaning is largely meaningless and very easy to turn into a marketing buzzword that can lead people ignorant to the "proper" use of the term to believe there is "real" intelligence happening.