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

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

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.

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.

Nvidia’s share price has taken a knock, and its Chinese chipmaking rivals have soared, after Beijing reportedly discouraged Chinese AI companies from buying Nvidia’s chips. Bloomberg reported on Friday that Chinese regulators had issued guidance steering AI firms away from Nvidia’s H20 chips—these aren’t Nvidia’s most cutting-edge AI chips,

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