Character.ai’s bankruptcy filing shows AI’s cost problem (opens the source in a new tab)
- Character.ai, valued at $1bn in 2023, has filed for Chapter 11. Its CEO’s court declaration says the technology is expensive to run and the company has always struggled to turn a profit.
- It spent $13.8m a month on computing in 2024 and $10m in 2025, while revenue from all sources, ads included, peaked at $5.3m a month. By August 2026 it was still losing about $8–9m a month.
- Cheaper models, layoffs, ads and in-app purchases did not close the gap, and lawsuits over harm to users added heavy legal bills. The service stays online during the bankruptcy.
- $10m
- monthly compute bill, 2025
- $5.3m
- best month of revenue
Why it matters Scale needs a subsidy. The giants fund AI from ad empires or fresh capital; second-tier players have neither. Expect consolidation, and more cluttered, pricier AI apps as survivors chase break-even.
Other side Is this AI’s economics or one firm’s niche? Heavy lawsuit costs and a crowded companion-app market may explain much of the collapse.
Source:404 Media (free to read) ↗