Nvidia stock was dropping Monday as the company prepares for a new challenge in the artificial-intelligence chip sector from China's Huawei Technologies.

Nvidia shares were down 2% on Monday, while the S&P 500 rose 0.2%. The stock rose 4.3% in Friday's session.

Huawei has approached some Chinese tech companies about testing a new chip, called the Ascend 910D, which it hopes will be more powerful than Nvidia's H100, The Wall Street Journal reported, citing people familiar with the matter. Nvidia's H100 was released in 2022 and has since been superseded by later generations of its Hopper chips and its new Blackwell AI semiconductors.

Nvidia is prohibited from selling its most powerful AI chips to Chinese companies. Huawei is already poised to ship more than 800,000 of its Ascend 910B and 910C chips to customers including state-owned telecommunications carriers and private AI developers, such as TikTok's parent ByteDance, according to the Journal.

Nvidia's market in China was already set to shrink after the Trump administration said it would impose license requirements on future sales of its H20 AI accelerators, which were specifically designed to comply with U.S. sanctions on Chinese AI exports. In fiscal 2025, 13% of Nvidia's sales were from billing addresses in China, down from 26% in fiscal 2022.

Outside of China, the challenge from Huawei could be limited as it continues to lag behind Nvidia's latest technology.

"The only real threat that I see to Nvidia here is in China where the state's control over the private sector may ensure a switch away from Nvidia's CUDA [software] with developers learning how to use Huawei's development platforms instead," wrote Richard Windsor, an independent analyst who publishes Radio Free Mobile.

One potential piece of good news for Nvidia is that one of its largest U.S. customers, Elon Musk's xAI, is seeking to raise $20 billion in funding, according to Bloomberg, which cited people familiar with the matter. The AI start-up didn't immediately respond to a request for comment early Monday.

Plenty of that money could be spent on Nvidia's hardware if the reported funding takes place, as xAI has invested in hundreds of thousands of the company's chips to run its AI data centers.

Nvidia also said Monday that the first of software-and-cloud computing company Oracle's liquid-cooled GB200 NVL72 racks, which stitch together dozens of Nvidia's chips, were ready for use by customers.