The White Hart Lane club are currently two points ahead of the Gunners with a game in hand, and the pair meet on Sunday afternoon.
If Spurs win they could move into the top four of the Premier League.
Tottenham last finished above Arsenal in the Premier League in the 1994-95 campaign, a feat which Armstrong, who wore a Tottenham shirt in the '70s, believes can be repeated this season
Speaking to talkSPORT, he said: "After what has happened to Arsenal over the last four months I'm not surprised Tottenham have been made favourites [to beat Arsenal on Sunday].
"But the pressure is on them because they're the home side and if they take the game to Arsenal it could be interesting.
"I think they have a stronger squad [than Arsenal], I would fancy them this season, I would fancy them to finish above Arsenal this year."
Spurs continued their solid start to their Europa League campaign last night, defeating Shamrock Rovers 3-1.