The AI has many shortcomings, but it can be challenging for a decently good player if you don't take advantage of them. The most important things to not do if you want a challenging game against the AI are to demand gifts/tribute, demand surrender, and propose unfair trades. The AI cannot intelligently determine the fairness of a trade and will quite happily trade away all its planets for a lot of tech. It also doesn't take it's empire's size into account when deciding whether to accept a demand for tribute - I once played with a policy of demanding a race's homeworld immediately on first contact, and the first three races I met gave it to me. After the third one, I got bored with that game and quit.
For a challenging AI without changing the rules of the game, get the
TDM modpack, and always play with many hard AI's with high bonus.
For the hardest single-player experience available, and a lot of changes to game play, get the AI Campaign mod from
here.
I haven't played GalCiv, so I don't know how SEIV's AI compares to that.
Re: How is the AI?
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