Discussions are underway between Google and the AI startup Character.AI for a potential investment.

Alphabet’s Google is currently engaged in discussions about investing hundreds of millions of dollars in Character.AI, a rapidly growing artificial intelligence chatbot startup, according to two sources familiar with the matter, as reported by Reuters.

This potential investment, which might be structured as convertible notes, aims to support Character.AI’s need for capital to train models and meet the rising demand from users. It would further strengthen the existing partnership between Character.AI and Google, where the startup utilizes Google’s cloud services and Tensor Processing Units (TPUs) for model training. Co-founded by former Google employees Noam Shazeer and Daniel De Freitas, Character.AI enables users to engage with virtual versions of celebrities and create their own chatbots and AI assistants. While the platform is free to use, it offers a subscription model charging $9.99 per month for users seeking priority access to chatbots. Character.AI’s diverse chatbots, with various roles and tones, have resonated particularly well with users aged 18 to 24, contributing to about 60% of its website traffic, according to Similarweb data.

In addition to the potential Google investment, Character.AI is reportedly in discussions with venture capital investors for equity funding that could value the company at over $5 billion. The startup previously raised $150 million in March in a funding round led by Andreessen Horowitz, achieving a $1 billion valuation.

The ongoing talks with Google suggest that the terms of the deal are subject to change, and sources requested anonymity due to the private nature of the discussions. Google’s interest in investing in AI startups aligns with a broader trend among major tech companies forming partnerships with AI firms to encourage the use of specific cloud services or hardware in the competitive landscape of model development and consumer service.

As the negotiations progress, it is worth noting that the U.S. Federal Trade Commission is reportedly examining cloud providers’ investments in AI startups, exploring potential anti-competitive behaviors in this rapidly evolving space.

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