What happened

Shares of semiconductor manufacturing equipment maker Applied Materials (AMAT -1.29%) are tumbling today, down by 4.8% as of 12:35 p.m. ET after it was reported that investment bank Berenberg cut its target price 23% to $120 a share.

So what

Applied Materials stock was already under pressure before the price-target cut, suffering from negative sentiment over U.S. government restrictions on the sale of advanced semiconductor manufacturing equipment to China. As my fellow Fool.com contributor John Ballard pointed out yesterday, these restrictions could cost Applied Materials anywhere from $250 million to $550 million in missed sales in the current quarter.

And now, investors have a new thing to worry about: As The Fly reports, according to Berenberg, there's a new "bear thesis" floating around about Applied Materials, suggesting that "no further innovation [in semiconductor manufacturing equipment] is needed as we are hitting the limitations" on how small semiconductors can be made. To an extent, Berenberg agrees with this thesis, admitting that higher-tech manufacturing equipment doesn't seem to be resulting in significant cost savings in chip manufacturing among Applied Materials' customers, which may impact sales and justify a lower stock price.  

Now what

But to an extent, Berenberg also disagrees with the thesis and is right to do so. The idea that technological innovation in chip designs will simply stop once chipmakers move from 14 nanometer (nm) circuit sizes to 7nm or 5nm or less ignores the fact that there are still sizes smaller than even 1 nm -- molecule-size picometers and subatomic femtometers and attometers for example.

While no one can presently build semiconductors at that scale, you can't rule out the possibility that someone, somewhen will do so -- utilizing new transistor designs and new materials to make that happen -- and will need manufacturing equipment for this. And even if they can't, machines from Applied Materials will still be needed to expand production capacity and replace old machines for the scales currently in use.

At a valuation of just 10.6 times earnings, Applied Materials stock is being priced for very little growth prospects. In fact, I think there's every reason to believe that the company can still grow strongly for years to come.