Updates with afternoon levels

By Ragini Mathur and Avinash P

July 9 (Reuters) - Wall Street's main indexes gained on Thursday, as a Micron Technology-led rally in chip stocks outweighed concerns that renewed U.S. and Iranian attacks would prolong the conflict and stoke broader geopolitical risks.

Iran said on Thursday it had hit U.S. military targets in Kuwait, Qatar and Bahrain, following Wednesday's U.S. strikes, further straining fragile ceasefire efforts.

The Philadelphia SE Semiconductor index .SOX gained 4.6% in morning trading to be on track for a second straight positive session.

Micron Technology MU.O jumped 7.5% after laying out plans to invest more than $250 billion in the United States through 2035, to benefit from an AI-fueled surge in demand for memory chips.

Applied Materials AMAT.O gained 7% and On Semiconductor ON.O leaped 9.3%. The information technology sector .SPLRCT advanced 1.5%, leading gains on the benchmark S&P 500 index.

Conversely, Meta Platforms META.O fell 1% after Reuters reported that the company plans to start making AI chips from September. The decline dragged down the communications services index .SPLRCL and capped gains on S&P 500.

Sentiment towards AI-linked stocks has been volatile lately amid concerns about the sustainability of a rally that has helped Wall Street reach record levels in 2026, despite simmering Middle East tensions.

"The rebound in chip stocks is likely sustainable, even though the sector may have risen too far, too fast and could see some short-term digestion of gains," said Sam Stovall, chief investment strategist, CFRA Research.

"My concern is not necessarily with semiconductors in particular or tech in general, but with the other areas of the market; because, with tensions in Iran resuming, it's very uncertain as to what kind of an impact that would have on inflationary projections."

IBM IBM.N and Microsoft MSFT.O fell 2% and 0.8%, respectively. Bloomberg reported Starbucks SBUX.O had tapped AI to reduce its reliance on both companies.

At 12:03 p.m. ET, the Dow Jones Industrial Average .DJI rose 174.99 points, or 0.33%, to 52,523.38, the S&P 500 .SPX gained 48.31 points, or 0.65%, to 7,531.02 and the Nasdaq Composite .IXIC gained 228.83 points, or 0.89%, to 26,099.48.

On the data front, the number of Americans filing claims for unemployment benefits fell last week, suggesting the labor 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 policymakers saw a case for raising borrowing costs before ultimately agreeing to hold steady.

Traders are pricing in at least one 25-basis-point rate hike by the end of the year, according to LSEG data.

Among others, PepsiCo PEP.O fell 3.3% despite the snacks and soda giant beating second-quarter revenue estimates.

Costco Wholesale's COST.O shares were down 4.5% to a six-month low after the grocery retailer reported decelerating comparable sales for June.

Advancing issues outnumbered decliners by a 2.12-to-1 ratio on the NYSE and by a 1.91-to-1 ratio on the Nasdaq.

The S&P 500 posted no new 52-week highs and no new lows while the Nasdaq Composite recorded no new highs and no new lows.