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The integration of artificial intelligence into materials science has highlighted challenges in model performance, particularly in domains that require extrapolation beyond the training data distribution. This manuscript explores compositional generalization as a unique failure mode in materials AI, in which systems struggle to interpret novel combinations of atomic or molecular elements despite familiarity with individual components. Through a synthesis of recent literature, the analysis delineates how this failure manifests in predictive tasks, such as property estimation in alloys or polymers, revealing underlying tensions between data-driven learning and structural comprehension. Conceptual interpretations highlight the interplay between representational invariance and contextual dependencies, underscoring epistemic gaps in current architectures. The proposed framework interprets these dynamics through lenses of modular interaction and systemic feedback, emphasizing trade-offs in scalability and robustness. By examining the ethical ramifications of deployment in high-stakes applications, the discussion integrates insights into steering mechanisms that could mitigate such limitations without empirical validation. Ultimately, this conceptual inquiry fosters a deeper understanding of AI’s role in advancing materials discovery and advocates for interpretive strategies that prioritize holistic integration over isolated optimizations.