Alphabet’s Google is reportedly in discussions to make a substantial investment, potentially in the range of hundreds of millions of dollars, in Character.AI, a burgeoning AI chatbot startup. This move comes as Character.AI seeks capital to further train its models and manage the increasing demand from users.

Founded by former Google employees Noam Shazeer and Daniel De Freitas, Character.AI has carved a niche by allowing users to engage with virtual versions of celebrities and anime characters. Users can also create their own chatbots and AI assistants through the platform. While the service is free to use, a subscription model priced at $9.99 a month offers users the advantage of skipping virtual queues to access a chatbot.

The potential investment, which might be structured as convertible notes, is expected to deepen the existing partnership between Google and Character.AI. The startup currently utilizes Google’s cloud services and Tensor Processing Units (TPUs) for training its models.

The chatbots offered by Character.AI have resonated particularly well with users aged 18 to 24, constituting around 60% of the website’s traffic. This demographic positioning has allowed Character.AI to differentiate itself as a provider of more entertaining and personalized AI companions compared to other AI chatbots in the market.

In addition to the investment talks with Google, Character.AI is also reportedly in discussions with venture capital investors for an equity funding round. If successful, this could potentially value the startup at over $5 billion. Notably, in March, the company raised $150 million in a funding round led by Andreessen Horowitz, reaching a $1 billion valuation.

The ongoing discussions between Google and Character.AI align with a broader trend where major tech companies are actively investing in AI startups. Google’s interest in Character.AI reflects the company’s strategic focus on expanding its presence in the AI landscape.

It’s important to note that the Federal Trade Commission (FTC) is scrutinizing cloud provider investments in AI startups for potential anti-competitive behaviors. This investigation underlines the growing significance of AI in the tech industry and the regulatory attention it attracts.

As talks between Google and Character.AI progress, the terms of the deal remain subject to change. However, if successful, this investment could significantly boost Character.AI’s capabilities, allowing it to stay at the forefront of the AI-driven chatbot market.