The former forward believes the Chilean shouldn't start against Barcelona on Wednesday.
The Chilean has struggled to replicate his fine form from last season, with a series of disappointing displays in this campaign.
So far he has managed just seven goals and two assists in 21 games in the Premier League, a far cry from his tally of 16 and 8 in 35 games last season.
His goal against Tottenham was his first since October, with injuries having hampered his form.
And now Nicholas has told Wenger to consider dropping him for their clash with his former club Barcelona on Wednesday.
“I would play Danny Welbeck up front and Theo Walcott on the right in the very slim hope that they could expose the lack of pace that Barca have at the back.”
“Leave Alexis Sanchez out, as he's been a non-event since his return from injury - except for the goal against Tottenham - and then have Mesut Ozil on the left and flood the midfield.”
The former Gunners striker has also predicted a heavy defeat for his old side at the Nou Camp in the second leg.
They travel to Spain 2-0 down from the first leg, after a Lionel Messi double put his side in a commanding lead.
Nobody is giving Wenger’s side a hope of progressing as a result, and Nicholas is one of them, predicting another tough evening will be on the cards.
“If Luis Enrique plays Neymar, Lionel Messi and Luis Suarez then I can see all of them scoring and I'd chop your hand off for a 2-0 defeat,” he added.
“I fear the worst because this team is exposed and desperate. I'd love nothing more than being proved wrong but I just can't see anything other than a heavy defeat.”