Federer, who has claimed four Australian Open titles himself, believes Kyrgios isn't experienced enough to go the full length.
"To win, he drops, in my humble opinion,'' Federer told Fairfax Media.
''To do anything, yes, first week no problem, but to go all the way it's a long way, and he's never been into a semis before, so first he has to prove to the world and himself that he can make the semis.
"So for me to start talking about him winning the tournament, Lleyton [Hewitt] never did it, and he was two times world No.1 at the end of the year.
''So I know [Kyrgios] has got a big game, but he has to beat four, five amazing players. Can he do that right now? I'm not sure.
''He can beat them, but not back to back to back to back to back, maybe. But I'm happy if he proves me wrong."
Kyrgios is in the same half of the draw as world number one Andy Murray, former Australian Open winner Stan Wawrinka and the 17th ranked Roger Federer.
"I think he's going to be tough to beat here. I think this court plays very well for him," Federer said of Kyrgios.
"It's not a great start to the year for him in some ways because of his knee, he was a bit on and off, and best-of-five again, different story.
''Two weeks, it's a long one, and he knows that.
''So I think it's gonna be a tough one, but I hope he can play a good year, virtually injury free this year. For me that would be exciting to see how would he do then?"