Spotify Technology (SPOT) reported better-than-expected third quarter earnings and issued an upbeat outlook, sending the music platform's shares higher.

However, New Constructs CEO David Trainer cautions that Spotify's stock surge proves the company's valuation is overextended.

"Valuation has to matter at some point," Trainer tells Catalysts, noting that to justify Spotify's current stock price, the music streaming platform would need to reach revenues of approximately $650 billion — nearly double the size of the entire music streaming industry.

"It is absurd how expensive the stock is," Trainer states.

From an investment perspective, he believes Spotify's share price poses a substantial risk, warning that "a stock this expensive is a huge risk because when the music stops, pun intended, the downside here is enormous."

To watch more expert insights and analysis on the latest market action, check out more Catalysts here.

This post was written by Angel Smith