Nvidia stock dropped in premarket trading before paring losses, following a report that China is urging local companies not to buy its AI chips.

Beijing urged local companies to stay away from the company's chips, according to a report, while the country is promoting domestic chip makers.

Nvidia faces potentially bigger hurdles in China after Bloomberg reported that the country's regulators are urging companies not to buy its H20 chips, used for AI models. Please w

In a move to strengthen its semiconductor industry and counter U.S. sanctions, Beijing is reportedly encouraging Chinese firms to prioritize locally produced artificial intelligence (AI) chips over those from Nvidia Corp.

Shares in Cambricon and Semiconductor Manufacturing International Corp (SMIC), which are both partially owned by the Chinese state, soared by 20% on Monday, hitting the daily limit on the Shanghai exchange. Naura Technology Group, which produces chipmaking equipment, saw its stock pop by 9.8% in Shenzhen.

Beijing is stepping up pressure on Chinese companies to buy locally produced artificial intelligence chips instead of Nvidia Corp. products, part of the nation’s effort to expand its semiconductor industry and counter US sanctions.

China urges its businesses to favor domestic semiconductor chips over NVIDIA's AI processors to bolster its chip industry.