The 27-year-old has struggled for opportunities recently, leading to questions about his future.
The England forward began the campaign as a serious rival for Olivier Giroud for the main striker role in the Gunners' squad, but has recently struggled to hold down a place in the side, and has not started a game since February.
And with Sky Sports now claiming that the lack of game-time has left his future up in the air, Nicholas has insisted that Arsene Wenger needs to ensure that the 27-year-old does not leave the Emirates as he has the ability to make them regret the decision to let him head elsewhere.
"There has to be suitors looking at him. I don't see why Manchester United and Liverpool wouldn't be interested," he told Sky Sports.
"Theo has the pace that people will be interested in and Chelsea might also be looking at him if they're considering letting Eden Hazard go.
"I think if the money was there, Arsene would sell him but I would not. It scares me that he could go to another club and deliver."
The former Southampton man's time with the North London club has often been blighted by injuries, which is perhaps why Wenger has stacked his squad full of exciting attacking players as he feels that he cannot rely on Walcott to remain fit for a whole campaign.
And with the likes of Alexis Sanchez, Mesut Ozil and Aaron Ramsey in the squad, it has seemingly become difficult for Wenger to justify dropping any of those men to fit Walcott into the side on a regular basis.
However, he undoubtedly has the ability to be a key part of a title-winning side, which is exactly why Nicholas is warning Wenger that letting him go may help extend the Gunners' long wait for the prize that has eluded them for the last 12 years.