Nvidia (NVDA) stock fell more than 5% on Wednesday as a new report suggested Chinese environmental rules could impact the AI giant's sales in China. The decline came amid a broader selloff in tech stocks on fears of an escalating trade war. 

Nvidia shares sank after the Financial Times reported Chinese regulators are encouraging firms to use data center chips that meet strict environmental requirements. The guidelines exclude Nvidia's H20 chip, its processor compatible with US export controls for the Chinese market.

In response to the report, a Nvidia spokesperson said, "Our products provide superb energy efficiency and value in every market we serve. As technology moves rapidly, export control policy should be adjusted to allow U.S. firms to offer the most energy efficient products possible, while still achieving the Administration's national security goals."

The report comes amid escalating trade tensions between Washington and Beijing after the US imposed additional tariffs on Chinese goods since President Donald Trump took office. Export curbs on advanced semiconductor technologies have also been a sore point between the two countries. 

Also on Wednesday, TD Cowen analysts said Microsoft (MSFT) cancelled new data center projects in the US and Europe, a move which heightened investor fears that Big Tech may pull back on artificial intelligence spending. 

However the analysts said "Positively for third-party data center operators, our checks point to Google (GOOG) stepping in to backfill capacity that Microsoft walked away from in international markets, while our checks point to Meta (META) backfilling capacity in the U.S."

The analysis follows a note from TD Cowen in February stating Microsoft recently cancelled an unspecified number of data center leases. 

Nvidia led the 'Magnificent 7' stocks lower on Wednesday, cutting short a recent rebound in the sector after the S&P 500 (^GSPC) and Nasdaq (^IXIC) entered correction territory earlier this month. 

Tech stocks have led a broader market sell-off this year as investors weigh the impact of the Trump administration's tariff policy on the economy.

Read more: How does Nvidia make money?

Fears of an overvaluation in the AI trade sent Nvidia tumbling in late January after Chinese startup DeepSeek launched a chatbot, reportedly with fewer resources than its US rivals.  

Renewed fears of an overextended AI trade surfaced earlier this month after chipmaker Marvell Technology's (MRVL) revenue outlook failed to impress investors, and semiconductor stocks fell.

Year-to-date Nvidia is down roughly 15%. 

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Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.

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