Mikel Arteta's side were widely expected to win the race for the Ukraine international's services in January, during which Mudryk made no secret of his admiration for the Gunners.
The 22-year-old shared a number of complimentary social media posts about Arsenal and Arteta, but Arsenal ultimately could not come to an agreement with Shakhtar Donetsk over a fee.
As a result, Chelsea swooped in under Arsenal's noses and agreed to sign Mudryk for an initial €70m (£62m), which could rise to as much as €100m (£88.5m) with add-ons.
However, Mudryk has struggled to acclimatise to life in the Premier League during his early days in the top flight, providing just one assist in his first seven games under Graham Potter.
The Ukraine international is competing with the likes of Mason Mount, Joao Felix, Christian Pulisic, Hakim Ziyech, Noni Madueke and Raheem Sterling for starts at Chelsea, who tied him to an eight-and-a-half year deal until 2031.
Speaking to Sports Mole at the London Football Awards, Smith - who scored 115 goals and won two top-flight titles with Arsenal - expressed his belief that Mudryk may have benefitted from a clearer path into the first XI at the Emirates.
"Mudryk is obviously a talent, but looking at him for Chelsea, I was thinking maybe he would have done better in an Arsenal side that's more settled and not as much competition for places," Smith said.
"It's obviously a bit more turbulent at Chelsea at the moment, so whether the story would have been different at Arsenal we'll never know."
Having failed to bring Mudryk or Felix to North London, Arsenal turned to Premier League experience in the shape of Leandro Trossard, who departed Brighton & Hove Albion in acrimonious circumstances.
Despite the nature of his Amex Stadium exit, Trossard has already earned the trust of Arteta and has come up with one goal and five assists in his first 11 games for the Premier League leaders.
The 28-year-old made history at Fulham last weekend, becoming the first-ever Premier League player to provide three assists in the first half of an away game as Arsenal stormed to a 3-0 win.
"He's certainly hit the ground running! I was always impressed with him as a player and obviously he's in a better team now than he was at Brighton, as well as they did," Smith added on Trossard.
"The fact is the recruitment at Arsenal now is so good that they've got second, third and fourth choices if the first doesn't come off. He's been a great signing so far."
Trossard could make his fifth Premier League start for Arsenal when they tackle managerless Crystal Palace on Sunday afternoon, as they endeavour to steer eight points clear of Manchester City at the top of the table.