(Reuters) -Alphabet closed in on a $4 trillion valuation on Monday, set to become only the fourth company to enter the exclusive club, as the Google parent rides an artificial intelligence-driven rally.

Shares of the company rose more than 5% to hit a record high of $315.9, giving it a market capitalization of $3.82 trillion. The stock has climbed nearly 70% so far this year, far outperforming AI rivals Microsoft ( MSFT ) and Amazon.com ( AMZN ).

Nvidia ( NVDA ), Microsoft ( MSFT ) and Apple ( AAPL ) have previously hit a $4 trillion valuation. Only Nvidia ( NVDA ) and Apple ( AAPL ) remain on the list currently.

The surge reflects a striking reversal in sentiment toward Alphabet after some investors feared the company had lost its AI edge to OpenAI after the 2022 launch of ChatGPT, even though it invented much of the underlying technology behind generative AI.

Alphabet has regained momentum this year by turning its cloud business, once an also-ran, into a key growth driver, drawing in Warren Buffett's Berkshire Hathaway as an investor and winning strong early reviews for its new Gemini 3 model.

Still, the milestone may fan fears about surging valuations that some business leaders warn have detached market movements from business fundamentals, sparking worries of a bubble reminiscent of the dot-com boom of the 1990s.

A wave of circular deals involving OpenAI and Nvidia ( NVDA ) - two of the companies at the heart of the AI boom - have also amplified the fears.

Still, analysts believe Google is well-positioned in the AI race, thanks to its strong cash flow, in-house chips that serve as an alternative to Nvidia's ( NVDA ) pricey processors and a sprawling internet search business that is already benefiting from AI integration.

(Reporting by Zaheer Kachwala and Aditya Soni in Bengaluru; Editing by Sriraj Kalluvila)