(Updated at 2:15 p.m. ET/ 1915 GMT)

* Investors cheer Alphabet's new AI model

* Advanced Micro Devices climbs after AI-chip market forecast

* Weekly jobless claims lower than expected

* Indexes: S&P 500 +0.78%, Nasdaq +1.28%, Dow +0.23%

Dec 7 (Reuters) - The Nasdaq surged on Thursday, with Alphabet and Advanced Micro Devices sparking a megacap rally on fresh optimism about artificial intelligence.

Shares of Alphabet jumped over 5% as analysts cheered the launch of the Google-parent's newest AI model, while AMD soared more than 9% after the company estimated the potential market for its data center AI chips could reach $45 billion this year.

Other heavyweight tech-related stocks also gained, with Nvidia and Amazon climbing nearly 2%, Meta Platforms rising 2.8% and Apple up about 1%.

The Philadelphia semiconductor index jumped 2.4%, bringing its 2023 gain to 47%, much of that fueled by bets about the future of AI.

"Today it's an AMD-Google rally. There's a contagion effect across the market. Everyone wants to get on the bandwagon," said Jay Hatfield, CEO of Infrastructure Capital Management in New York.

"We're kind of in this weird market, a tag-team market, where one day tech leads, and then the next day value and the broad market lead."

The S&P 500 has steadily climbed since the end of October on expectations the Federal Reserve has finished its campaign of interest rate hikes and that it could begin cutting rates in March.

The S&P 500 rose 0.78% to 4,585.04 points. Two stocks gained in the index for every one that fell.

The Nasdaq Composite Index gained 1.28% at 14,328.22 points, while the Dow Jones Industrial Average was up 0.23% at 36,138.93.

Traders have almost fully priced in the likelihood of the Fed keeping rates unchanged at its meeting next week.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits increased less than expected last week to a seasonally adjusted 220,000 for the week.

A Labor Department jobs report due on Friday could hint at how quickly the U.S. economy is softening and may sway expectations about when the Fed is likely to begin cutting rates. Non-farm payrolls are expected to have increased by 180,000 jobs last month after rising by 150,000 in October.

Interest rate futures imply a nearly 64% chance of a rate cut as soon as March, according to the CME Group's FedWatch tool.

Limiting gains in the Dow, shares of Merck fell 1.2% after the drugmaker's immunotherapy combination failed in a lung cancer study.

The S&P 500 posted 15 new highs and no new lows; the Nasdaq recorded 64 new highs and 85 new lows. (Reporting by Amruta Khandekar and Shristi Achar A in Bangalore and by Noel Randewich in Oakland, Calif.; Editing by Saumyadeb Chakrabarty, Anil D'Silva and Richard Chang)