Oct 25 (Reuters) - Nvidia (NVDA.O), opens new tab, surpassed Apple (AAPL.O), opens new tab to temporarily claim the title of the world's most valuable company on Friday, driven by unprecedented demand for its advanced AI-focused chips, pushing its stock to record levels.

Nvidia’s market capitalization briefly peaked at $3.53 trillion, nudging past Apple's $3.52 trillion, according to data from LSEG.

By the end of the trading day, Nvidia closed 0.8% higher, giving it a valuation of $3.47 trillion. Meanwhile, Apple saw its shares rise slightly by 0.4%, bringing its market capitalization to $3.52 trillion.

Back in June, Nvidia briefly held the top spot in market value, before being overtaken first by Microsoft (MSFT.O), opens new tab, followed later by Apple. For the past few months, the tech giants have traded close leads in market capitalizations.

Microsoft’s market value stands at $3.18 trillion, also finishing up 0.8% for the day.

As a dominant force in AI computing with its specialized processors, Nvidia has emerged as a key player amidst fierce competition from companies like Microsoft, Alphabet (GOOGL.O), opens new tab, and Meta Platforms (META.O), opens new tab, all vying for leadership in this transformative technology.

Nvidia, once primarily known for its gaming-focused processors in the 1990s, has seen its stock rise about 18% throughout October. Notably, this climb followed OpenAI's announcement of a massive $6.6 billion investment round, fueling excitement surrounding AI.

On Friday, Nvidia and other semiconductor companies also benefitted from positive sentiment as Western Digital (WDC.O), opens new tab, a notable player in the data storage market, exceeded analysts' earnings predictions, driving optimism for continued strong demand in data centers.

"A growing number of companies are incorporating artificial intelligence into their regular operations, and Nvidia chips remain highly sought after," said Russ Mould, investment director at AJ Bell.

"Nvidia is in a prime position right now, and as long as the U.S. economy avoids a downturn, the expectation is that companies will prioritize AI investments, creating a favorable environment for the chipmaker," he added.

Nvidia’s shares hit a new all-time high on Tuesday, furthering its recent rally fueled by Taiwan Semiconductor Manufacturing Co. (TSMC) (2330.TW), opens new tab, which posted a hefty 54% profit jump last quarter, driven by massive demand for AI chips.

Contrasting Nvidia’s rise, Apple faces diminishing demand for its smartphones. iPhone sales in China fell by 0.3% in the third quarter, while competitor Huawei [RIC:RIC:HWT.UL] experienced a 42% jump in sales.

All eyes are on Apple’s upcoming quarterly report due Thursday, with analysts predicting a 5.55% revenue increase year-over-year to $94.5 billion, LSEG data indicated.

In comparison, analysts forecast Nvidia’s revenue to skyrocket by nearly 82% to reach $32.9 billion.

Nvidia, Apple, and Microsoft play a critical role not just within the tech industry but also within the broader U.S. markets, as they collectively make up nearly one-fifth of the S&P 500 index's (.SPX), opens new tab, weight.

Rising optimism around AI proliferation, expectations that the Federal Reserve will significantly reduce U.S. interest rates, and a strong start to the earnings season have all combined to boost the S&P 500 to record heights last week.

Nvidia's monumental stock gains have garnered attention from options traders, with its options consistently ranking among the most traded in recent months, according to Trade Alert's options analytics data.

The company’s stock has surged nearly 190% year-to-date, fueled by an overwhelming boom in generative AI, leading to successive rounds of bullish forecasts.

"The real question is whether this revenue explosion will persist over time, or if it’s being driven more by investor sentiment than by any solid proof that AI is not just a temporary hype," remarked Rick Meckler, partner at Cherry Lane Investments, based in New Vernon, New Jersey.

"At the moment, Nvidia seems to anticipate a remarkable near-term financial performance."