The north London side endured a disappointing campaign last term as they ended up in fifth place in the Premier League and missed out on Champions League qualification.
Arsene Wenger found himself under intense pressure last term but the Gunners still opted to hand the Frenchman a new two-year contract at the end of the campaign.
Arsenal did end the 2016-17 season on a high by beating Chelsea in the FA Cup final back in May as they lifted the trophy for the third time in four years.
However, former Arsenal star Nicholas feels that the Gunners are still a significant way short of being able to challenge for the Premier League title next season.
Speaking to Sky Sports, Nicholas said: “As it stands right now, they will finish fourth at best.
“There are still too many questions about this side and Wenger needs to answer them before the transfer window shuts.”
Arsenal have brought in two players so far this summer – Alexandre Lacazette and Sead Kolasinac – as Wenger looks to ready his team for next season.
The north London side will have to settle for Europa League football next season after their fifth-placed finish in the Premier League last term.
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