diff --git a/compiler/packages/babel-plugin-react-compiler/src/Entrypoint/Program.ts b/compiler/packages/babel-plugin-react-compiler/src/Entrypoint/Program.ts
index 085ac44f49bcb..8e5b00e6cd160 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/Entrypoint/Program.ts
+++ b/compiler/packages/babel-plugin-react-compiler/src/Entrypoint/Program.ts
@@ -688,7 +688,8 @@ function getComponentOrHookLike(
   if (functionName !== null && isComponentName(functionName)) {
     let isComponent =
       callsHooksOrCreatesJsx(node, hookPattern) &&
-      isValidComponentParams(node.get("params"));
+      isValidComponentParams(node.get("params")) &&
+      !returnsNonNode(node);
     return isComponent ? "Component" : null;
   } else if (functionName !== null && isHook(functionName, hookPattern)) {
     // Hooks have hook invocations or JSX, but can take any # of arguments
@@ -708,12 +709,31 @@ function getComponentOrHookLike(
   return null;
 }
 
+function skipNestedFunctions(
+  node: NodePath<
+    t.FunctionDeclaration | t.ArrowFunctionExpression | t.FunctionExpression
+  >
+) {
+  return (
+    fn: NodePath<
+      t.FunctionDeclaration | t.ArrowFunctionExpression | t.FunctionExpression
+    >
+  ): void => {
+    if (fn.node !== node.node) {
+      fn.skip();
+    }
+  };
+}
+
 function callsHooksOrCreatesJsx(
-  node: NodePath<t.Node>,
+  node: NodePath<
+    t.FunctionDeclaration | t.ArrowFunctionExpression | t.FunctionExpression
+  >,
   hookPattern: string | null
 ): boolean {
   let invokesHooks = false;
   let createsJsx = false;
+
   node.traverse({
     JSX() {
       createsJsx = true;
@@ -724,11 +744,48 @@ function callsHooksOrCreatesJsx(
         invokesHooks = true;
       }
     },
+    ArrowFunctionExpression: skipNestedFunctions(node),
+    FunctionExpression: skipNestedFunctions(node),
+    FunctionDeclaration: skipNestedFunctions(node),
   });
 
   return invokesHooks || createsJsx;
 }
 
+function returnsNonNode(
+  node: NodePath<
+    t.FunctionDeclaration | t.ArrowFunctionExpression | t.FunctionExpression
+  >
+): boolean {
+  let hasReturn = false;
+  let returnsNonNode = false;
+
+  node.traverse({
+    ReturnStatement(ret) {
+      hasReturn = true;
+      const argument = ret.node.argument;
+      if (argument == null) {
+        returnsNonNode = true;
+      } else {
+        switch (argument.type) {
+          case "ObjectExpression":
+          case "ArrowFunctionExpression":
+          case "FunctionExpression":
+          case "BigIntLiteral":
+          case "ClassExpression":
+          case "NewExpression": // technically `new Array()` is legit, but unlikely
+            returnsNonNode = true;
+        }
+      }
+    },
+    ArrowFunctionExpression: skipNestedFunctions(node),
+    FunctionExpression: skipNestedFunctions(node),
+    FunctionDeclaration: skipNestedFunctions(node),
+  });
+
+  return !hasReturn || returnsNonNode;
+}
+
 /*
  * Gets the static name of a function AST node. For function declarations it is
  * easy. For anonymous function expressions it is much harder. If you search for
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-nested-jsx.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-nested-jsx.expect.md
new file mode 100644
index 0000000000000..adb9a1da40ea8
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-nested-jsx.expect.md
@@ -0,0 +1,51 @@
+
+## Input
+
+```javascript
+// @compilationMode(infer)
+function Component(props) {
+  const result = f(props);
+  function helper() {
+    return <foo />;
+  }
+  helper();
+  return result;
+}
+
+function f(props) {
+  return props;
+}
+
+export const FIXTURE_ENTRYPOINT = {
+  fn: Component,
+  params: [{}],
+};
+
+```
+
+## Code
+
+```javascript
+// @compilationMode(infer)
+function Component(props) {
+  const result = f(props);
+  function helper() {
+    return <foo />;
+  }
+  helper();
+  return result;
+}
+
+function f(props) {
+  return props;
+}
+
+export const FIXTURE_ENTRYPOINT = {
+  fn: Component,
+  params: [{}],
+};
+
+```
+      
+### Eval output
+(kind: ok) {}
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-nested-jsx.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-nested-jsx.js
new file mode 100644
index 0000000000000..9d9e070ca9804
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-nested-jsx.js
@@ -0,0 +1,18 @@
+// @compilationMode(infer)
+function Component(props) {
+  const result = f(props);
+  function helper() {
+    return <foo />;
+  }
+  helper();
+  return result;
+}
+
+function f(props) {
+  return props;
+}
+
+export const FIXTURE_ENTRYPOINT = {
+  fn: Component,
+  params: [{}],
+};
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-obj-return.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-obj-return.expect.md
new file mode 100644
index 0000000000000..0edadfae9ccaf
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-obj-return.expect.md
@@ -0,0 +1,43 @@
+
+## Input
+
+```javascript
+// @compilationMode(infer)
+function Component(props) {
+  const ignore = <foo />;
+  return { foo: f(props) };
+}
+
+function f(props) {
+  return props;
+}
+
+export const FIXTURE_ENTRYPOINT = {
+  fn: Component,
+  params: [{}],
+};
+
+```
+
+## Code
+
+```javascript
+// @compilationMode(infer)
+function Component(props) {
+  const ignore = <foo />;
+  return { foo: f(props) };
+}
+
+function f(props) {
+  return props;
+}
+
+export const FIXTURE_ENTRYPOINT = {
+  fn: Component,
+  params: [{}],
+};
+
+```
+      
+### Eval output
+(kind: ok) {"foo":{}}
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-obj-return.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-obj-return.js
new file mode 100644
index 0000000000000..de3d8434494a8
--- /dev/null
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/infer-no-component-obj-return.js
@@ -0,0 +1,14 @@
+// @compilationMode(infer)
+function Component(props) {
+  const ignore = <foo />;
+  return { foo: f(props) };
+}
+
+function f(props) {
+  return props;
+}
+
+export const FIXTURE_ENTRYPOINT = {
+  fn: Component,
+  params: [{}],
+};
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-function-expression-object-expression.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-function-expression-object-expression.expect.md
index 09d37fdaa38c6..efd736980997e 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-function-expression-object-expression.expect.md
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-function-expression-object-expression.expect.md
@@ -4,6 +4,7 @@
 ```javascript
 // @compilationMode(infer)
 function Component() {
+  "use memo";
   const f = () => {
     const x = {
       outer() {
@@ -27,13 +28,13 @@ function Component() {
 ## Error
 
 ```
-   7 |           const y = {
-   8 |             inner() {
->  9 |               return useFoo();
-     |                      ^^^^^^ InvalidReact: Hooks must be called at the top level in the body of a function component or custom hook, and may not be called within function expressions. See the Rules of Hooks (https://react.dev/warnings/invalid-hook-call-warning). Cannot call Custom within a function component (9:9)
-  10 |             },
-  11 |           };
-  12 |           return y;
+   8 |           const y = {
+   9 |             inner() {
+> 10 |               return useFoo();
+     |                      ^^^^^^ InvalidReact: Hooks must be called at the top level in the body of a function component or custom hook, and may not be called within function expressions. See the Rules of Hooks (https://react.dev/warnings/invalid-hook-call-warning). Cannot call Custom within a function component (10:10)
+  11 |             },
+  12 |           };
+  13 |           return y;
 ```
           
       
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-function-expression-object-expression.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-function-expression-object-expression.js
index aead5b5e22778..981cfdade0efc 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-function-expression-object-expression.js
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-function-expression-object-expression.js
@@ -1,5 +1,6 @@
 // @compilationMode(infer)
 function Component() {
+  "use memo";
   const f = () => {
     const x = {
       outer() {
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-object-method.expect.md b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-object-method.expect.md
index 56c89fa5fbcf5..bac804c00dfaf 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-object-method.expect.md
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-object-method.expect.md
@@ -4,6 +4,7 @@
 ```javascript
 // @compilationMode(infer)
 function Component() {
+  "use memo";
   const x = {
     outer() {
       const y = {
@@ -23,13 +24,13 @@ function Component() {
 ## Error
 
 ```
-   5 |       const y = {
-   6 |         inner() {
->  7 |           return useFoo();
-     |                  ^^^^^^ InvalidReact: Hooks must be called at the top level in the body of a function component or custom hook, and may not be called within function expressions. See the Rules of Hooks (https://react.dev/warnings/invalid-hook-call-warning). Cannot call Custom within a function component (7:7)
-   8 |         },
-   9 |       };
-  10 |       return y;
+   6 |       const y = {
+   7 |         inner() {
+>  8 |           return useFoo();
+     |                  ^^^^^^ InvalidReact: Hooks must be called at the top level in the body of a function component or custom hook, and may not be called within function expressions. See the Rules of Hooks (https://react.dev/warnings/invalid-hook-call-warning). Cannot call Custom within a function component (8:8)
+   9 |         },
+  10 |       };
+  11 |       return y;
 ```
           
       
\ No newline at end of file
diff --git a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-object-method.js b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-object-method.js
index 5ba5a74c0de41..4d0a181fb4ca9 100644
--- a/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-object-method.js
+++ b/compiler/packages/babel-plugin-react-compiler/src/__tests__/fixtures/compiler/rules-of-hooks/error.invalid-hook-in-nested-object-method.js
@@ -1,5 +1,6 @@
 // @compilationMode(infer)
 function Component() {
+  "use memo";
   const x = {
     outer() {
       const y = {