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.

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