Arteta was appointed as Gunners boss last week and has his work cut out with the club only winning once in their last 13 games.
Holloway believes the job could be too much for a rookie manager to undertake.
He told talkSPORT: “I think he’s under massive scrutiny and he’s always going to be compared to Pep Guardiola and he certainly isn’t Pep.
“I think they are in trouble so it is a very, very, very, iffy, risky appointment. Everton have made the right choice but Arsenal haven’t.
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“It’s okay learning from somebody, obviously so brilliantly talented as Pep Guardiola but you still haven’t made a substitution yourself, still haven’t left someone out, you still haven’t had a bad run of game. You are starting with a very difficult set of circumstances at Arsenal, a club as big as Arsenal.
“This is the worst Arsenal team I’ve seen in two decades, in my opinion. It’s awful. There’s hardly a balance in it. They can’t defend. I don’t know what they are trying to do or how they are playing. He’s got a huge job on his hands and I don’t know who makes the signings.”
Arteta was Pep Guardiola’s assistant at Man City before taking over at Arsenal.
Holloway does not think he will be able to replicate Guardiola’s style at the Emirates because they lack the players needed.