As Goal exclusively revealed in May, Arsenal have agreed terms with Williams but are still in discussions with the Welsh club over a transfer fee.
But Davies believes Williams excelled last season as the Swans won the Capital One Cup and should not sell the 28-year-old for less than £10m.
|6/1||Liverpool are 6/1 with BetVictor to sign Ashley Williams this summer
"A price of £10million or more to sign him is completely justified.
"You see some of the money that gets spent in this league on players who are unproven in the Premier League. I think £10million is more than a fair price."
Davies also believes losing his Wales international team-mate would be a huge blow to Michael Laudrup's side.
He added: "You could see last season how good he was for us and he would be a massive loss.
"At the moment he is still a Swansea player and hopefully that will stay the same, but if he does leave for another club we will have to adapt quickly.
"We have Jordi Amat coming in as a new signing and hopefully he can be as good as, if not better than, him if it comes down to it."
Davies, 20, also paid tribute to the guidance Williams provided him in his first full professional campaign - a season that saw him make the left-back spot his own following injury to Neil Taylor.
"Ash gave me a lot of confidence on the pitch and the transition from Swansea to playing for Wales was made a lot easier as I played with him every week," he continued.
"He is a great player and a great captain, he is always there to talk to, and if you have to say something he is happy to take it."