Character.ai Files for Bankruptcy After Spending $13.8M/Month on Compute While Earning Under $5.3M/Month in Revenue

Character.ai filed for bankruptcy this week, with court documents confirming what critics had been saying for years: the company spent far more running its product than it ever earned from it. At peak, it burned $13.8 million per month on AI compute in 2024; its total revenue from all sources peaked at $5.3 million per month. Between January and August 2026 alone, it spent $56.1 million on compute. As of August it was still losing $8–9 million per month, which CEO Colin Adams described as "a massive improvement."

The company's attempts to close the gap — injecting ads into chats, simplifying its AI model, laying off staff, introducing usage limits — are what 404 Media previously called "AI enshittification." The strategy failed to save it. The bankruptcy filings also cite enormous legal costs from a lawsuit brought by the family of a teenager who died by suicide after chatting with one of its bots, as well as pressure from regulators over its popularity with minors. Disney, which sent the company a cease-and-desist last year over unauthorized use of its characters, has reportedly offered $20 million to license some of that same IP. Character.ai says it will keep the platform running through the bankruptcy process.