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.

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Nvidia is facing new headwinds stemming from trade fears related to China, a development likely to impact the share price.

Nvidia Corp stock down as China urges use of domestic AI chips from companies like Cambricon and Huawei. US hyperscalers remain invested in Nvidia AI chips.