The England winger has been ruled out for the rest of the season after rupturing his anterior cruciate ligament on Saturday and Nicholas feels it is a major blow to the Gunners' Premier League title hopes.
"Arsenal are going to miss him badly," the pundit told Sky Sports. "If Theo had stayed fit until the end of the season, I think he would have got Arsenal the title because his pace can stretch defenders.
"We've got (Alex) Oxlade-Chamberlain coming back, we've got (Lukas) Podolski back and also the very talented (Serge) Gnabry, who I think will be able to replace Theo in that position, but he will not be able to replace the pace or the goals.
"I know he (Walcott) has always said he wants to play centre forward, but coming in from the right side, he's learnt to play the position really well over the years.
"His pace was the asset that the team will miss more than anything.
"The longer the season goes on the deeper the teams will get and I think that's the asset that Arsenal are going to miss and the goals they will certainly miss."
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