Chip stocks lead the rally
The Nasdaq has ended sharply higher as Micron Technology fuelled a rally in chip stocks that eclipsed fears that renewed US and Iranian attacks might prolong the Middle East conflict and fuel inflation.
Iran said it hit US military targets in Kuwait, Qatar and Bahrain following US strikes against Iran on Wednesday.
The PHLX chip index surged 3.06%, up for a second straight session.
The Dow and the S&P 500 also closed higher.
Micron Technology jumped 4.5% after the company laid out plans to invest more than $US250 billion ($A361 billion) in the US through 2035, to benefit from demand for memory chips to supply the boom in artificial intelligence.
Applied Materials climbed 3.2% and Sandisk surged 7.6%.
AI bull market questioned
AI-related stocks have been volatile lately as investors worried about the sustainability of a rally that has helped Wall Street reach record levels in 2026.
“This is still very much an AI bull market. For a bit, it was starting to broaden out, but that's contingent on oil prices and interest rates staying anchored, and with this flare-up in the Middle East, that calls that part of the bull market into question,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.
Meta Platforms rose after Reuters reported that the company plans to manufacture AI chips starting in September.
Sector gains and stretched valuations
The S&P 500 climbed 0.81% to end the session at 7,543.66 points and the Nasdaq gained 1.30% to 26,206.89 points. The Dow Jones Industrial Average rose 0.27% to 52,487.41 points.
Seven of the 11 S&P 500 sector indexes rose, led by information technology, up 1.65%, followed by a 1.46% gain in consumer discretionary.
Following Thursday's gains, the S&P 500 is up about 10% in 2026. It remains down less than 1.0% from its June 2 record high close.
With quarterly reporting season set to get under way, analysts on average expect S&P 500 earnings to increase 24% year-over-year, with technology companies accounting for much of that increase, according to LSEG I/B/E/S.
The S&P 500 is trading at about 20 times expected earnings, down from 21 a month ago.
Jobs data steady, Fed holds rates
The number of people in the US filing claims for unemployment benefits fell last week, suggesting the labour market remained stable despite a slowdown in job growth in June.
The Federal Reserve kept interest rates unchanged at its June meeting, under new chair Kevin Warsh, but minutes released on Wednesday showed a few policy makers saw a case for raising borrowing costs before ultimately agreeing to hold steady.
Traders are pricing in a likely 25-basis-point rate hike by the Fed's December meeting, according to CME's FedWatch tool.
