The former forward believes that Arsene Wenger's side should be firmly focused on the Premier League.
The Gunners travelled to Germany full of confidence after beating them 2-0 at the Emirates last time around, but were thrashed 5-1 as Pep Guardiola’s ran riot at the Allianz Arena.
It could prove to be a hugely demoralising defeat for Arsene Wenger’s side as they seek to put together a proper Premier League challenge this season.
They take on Tottenham in a London derby on Sunday and Nicholas says that game is more important than the defeat to the Germans.
“It's a much more important game [against Tottenham],” he told Sky Sports.
“This is about survival in the Champions League at the moment. If it doesn't happen, it doesn't happen. Arsenal's seriousness this season is in the Premier League.”
At this moment in time, exiting the Champions League could turn out to be a blessing in disguise for the Gunners.
Without European football to focus on, it would leave the side able to fully focus on the Premier League and continue what has so far been a strong start to their title challenge this season.
That was certainly something that benefitted Liverpool in 2013/14, when their lack of European football saw them able to fully focus on the league and indeed come close to winning it.
Given Arsenal’s injury issues as well, the reduced number of games could also be a bonus, suggesting a European exit may not be as bad as the situation would seem at this moment.