Character.ai spent up to $13.8M a month on compute while revenue peaked at $5.3M, filings show

Bankruptcy filings expose the cost of running a consumer chatbot

Character.ai, the AI companion chatbot company valued at $1 billion in 2023 after raising $150 million in a round led by a16z, has filed for bankruptcy. According to 404 Media, the court documents contain an unusually detailed account of the gap between what a consumer AI product costs to run and what it actually earns: a narrative filed in bankruptcy court on Tuesday, alongside an affidavit from CEO Colin Adams, lays out monthly compute bills, subscription income and the losses that persisted even after aggressive cost cutting.

Legal trouble contributed to the collapse. The company has been sued by the family of a user who killed himself after chatting with one of its bots, and regulators have pushed for age-verification measures because of the platform's popularity with children. Disney, which sent Character.ai a cease-and-desist last year over unlicensed use of its characters, has reportedly offered $20 million to license that intellectual property. But the filings state that even setting the lawsuits aside, the underlying business was deeply unprofitable.

The numbers

Adams wrote in his affidavit that the company's "impressive technology is expensive to operate" and that it "struggled with profitability" while carrying high operational spending throughout its existence.

The figures bear that out. In 2024, Character.ai spent $13.8 million per month on AI compute, a figure that fell to $10 million per month in 2025. Subscription revenue peaked at $2.8 million per month and at times dropped below $1 million. Revenue from all sources, including advertising, never exceeded $5.3 million per month.

Between January and August 2026 the company spent $56.1 million on compute and $19.7 million on salaries and benefits, and as of August it was still losing roughly $8–9 million per month — which the company framed as a major improvement on the previous year. Morale was a casualty too: the filings note that many employees quit after they "began questioning Character's long-term viability."

Cost cuts made the product worse

According to 404 Media, the filings essentially confirm a strategy the outlet described in May as AI "enshittification." Adams wrote that the company shifted inference workloads to lower-cost GPU capacity, moved to post-training open-weight models rather than developing proprietary foundation models, reduced headcount, launched in-app advertising in mid-2025 and introduced in-app purchases in early 2026. For users, the practical result was more ads, tighter usage limits and simplified models with heavier guardrails — and it still was not enough to reach sustainability.

The platform keeps running for now

In a blog post, Character.ai said the platform "remains up and running" and that all services remain accessible while the company searches for the best path forward through the bankruptcy process.

Why it matters

As 404 Media points out, there is little in Character.ai's filings that could not be said about many other AI companies spending heavily on compute without a revenue model to match. What separates it from OpenAI, Anthropic, Meta and Google is access to capital: the giants have repeatedly raised fresh funding, and Meta and Google can subsidize AI losses with their enormous advertising businesses. Meanwhile, frontier models with fewer guardrails — ChatGPT or Meta's Muse — can already do much of what a specialized companion product offers, steadily eroding the niche. Rare, court-verified numbers on AI unit economics make Character.ai a useful bellwether for the sector: if a billion-dollar company with millions of users could not make the arithmetic work, the runway for second-tier AI players without deep pockets or a subsidy engine looks extremely short.