AI Vs. AI battles are fought with auto_calc, which doesn't take into account what certain units might be able to exploit to their advantage during battles, only unit quality is used to calculate the outcomes, so that can't be it.

It's most probably the AI draining their cities of population. I should think it really hurts factions that have high unit numbers, such as Makedonia or Sweboz for example, because the script is giving them however many thousands per turn and they always create several huge armies of crap quality troops, even when they're not at war... When they are at war however, constantly just as Makedonia or Seleukia is, it's no wonder they don't expand much.