Microchip giant NXP Semiconductors (NXPI 3.18%) was on a roll at the end of 2019. The stock was setting fresh all-time highs as the company recovered from the dual hangovers of Chinese-American trade tensions and the failed merger with Qualcomm. Then the COVID-19 pandemic came along and NXP hit the same brick wall as everyone else.

NXP will report second-quarter results on Monday. Is the stock a good buy on the eve of this important business update?

Signs of strife in the chip sector

Share prices have largely recovered and NXP is trading 20% below February's all-time highs. It's painful but still a strong improvement from the 49% year-to-date drop that NXP recorded in March.The recovery rested on a brighter future for car sales around the world and a generally resilient supply and-demand picture for semiconductors.

But it's not all wine and roses. Chip giant Intel (INTC -0.38%) reported solid second-quarter results on Thursday but with a side of weak guidance for the rest of 2020. Intel is having trouble with upgraded manufacturing processes in its own factories, forcing the company to rely on third-party contractors to an unusual degree.

That could be bad news for sector peers like NXP. Keep in mind that leading chip foundry Taiwan Semiconductor Manufacturing (TSM 2.84%) is running its facilities at nearly full capacity. The company expects to grow sales by 24% year over year in the third quarter, based on guidance given last week. When Intel needs more production lines, someone else is losing access to the same manufacturing facilities. Ergo, bad news for Intel tends to spill over into the broader semiconductor market.

Two hands giving thumbs-up and thumbs-down signs in front of several sheets of uncut microchip wafers.

Image source: Getty Images.

Hold your horses

I fully expect NXP to report strong second-quarter results on Monday, but the company is also likely to follow Intel's lead with sobering full-year guidance targets. Some investors will panic at the thought of a difficult second half, taking the sheen off of NXP's recent market momentum.

NXP is one of my favorite long-term investments thanks to its leadership in the exploding automotive computing market. If you think I'm wrong about the market reaction to NXP's results next week, feel free to start or grow your position right now. Just make sure to keep some dry powder ready for picking up NXP shares at a deeper discount on Tuesday.