The former Gunner cannot believe what the French manager said about his side.
The Gunners' Premier League title hopes are hanging by a thread, and their hopes could effectively be over if they lose to second-placed Tottenham Hotspur in Saturday's hugely-anticipated North London derby at White Hart Lane.
Wenger's side go into the contest fresh from back-to-back defeats away at Manchester United and home to Swansea, leaving them six points behind leaders Leicester City.
After Wednesday's defeat to the Swans, the French manager conceded that his troops' morale had plummeted, and Nicholas believes confidence will hit rock bottom if they lose to Spurs.
"You can't be in this position in a title run-in and have a manager admitting their confidence is draining out of the side, even if that is the case," he told Sky Sports.
"If they are short of confidence after playing Swansea then what are they going to be like after a derby defeat?"
By roughly 7.30 pm tomorrow evening, Wenger's side could be nine points off the pace if they lose to Tottenham and Leicester win away to Watford in the late match.
Such a deficit would be nigh-on impossible to make up with only nine matches to go, and Arsenal can ill afford to put themselves in that position if they harbour genuine hopes of winning their first league title since 2004.