The short answer is that, leading up to Operation Barbarossa, estimates of Soviet military prowess varied, even within Germany. However, it was widely believed that the Soviet core was “rotten” by a lot of disparate parties. Notably, British and American military intelligence and political leadership (I.e. Winston Churchill) were greatly concerned that the Soviets would collapse quickly. Hitler and the Nazis were also not alone in Germany in thinking this - The OKW and OKH (German joint and army high commands) were confident that the Soviets would collapse within 6 months. The fact that fewer than 1 in 5 German soldiers were given winter clothing at the beginning of the invasion points to as such.

This thinking was a consequent of a few factors, including the Great Purge, which ultimately killed, imprisoned, exiled or kicked out thousands of officers, including a majority of flag officers down to the regiment and brigade level. This had the duel effect of removing effective officers (such as Mikhail Tukhachevsky) and replacing them with political hacks and those willing to follow bad orders.

Second, the Soviet failure in the Winter War with Finland almost certainly exasperated existing estimates about Soviet military capabilities and their inadequacies post-Purge. The numerically and technologically superior Soviets suffered terrible losses and showed poor wisdom regarding modern force employment.

Finally, the fact that Germany toppled France in six weeks led both the Germans and British/Americans to assume the Soviets had no chance. The French military was widely considered the most advanced in the world, with large numbers, advanced technology, and experienced commanders.

With all that said, estimate of inevitable Soviet collapse were not universal. The German Military attaché in Moscow, Ernst August Köstring, warned his superiors that Soviet leadership would not give up easily. Heinz Guderian also claims (in his notoriously self-aggrandizing memoir) that he warned OHW against overconfidence in an eastern campign.

And perhaps most notably, the Japanese were wholly unconvinced of Soviet military incompetence. The Japanese army faced Soviet forces (under Zhukov no less) in Manchuria in 1938-39 in a series of border skirmishes, and witnessed the Soviet military with effective force employment. Consequently, the Japanese viewed a non-aggression pact with the USSR as the main guarantor to their own offensive goals in East Asia (and throughout the entire war, the largest Japanese army stayed on its border with the USSR, even as the U.S. rolled back their imperial gains).

So, short story long, Germany’s overconfidence against the USSR was not only based on Nazi racial ideology, but was based on other analyses which were shared and debated.

I have a question which I've never understood. Why was Germany in such a rush to invade Russia? They were enjoying a pact together with a scheme to divide land (Poland) up between them as they saw fit. Although from what I understand Germany saw it as only a matter of time before there was conflict between them and they wanted to strike first, there was no plans for Russia to attack whatsoever. Stalin as I understand was in disbelief when he heard. Why intiate a war with Russia so quickly and stretch your forces. Why fight a war on two fronts when you don't need to? What intelligence did Germany act on that led to them think fighting on two fronts would good the best idea? I know this is hindsight but surely any common sense would tell them this was a bad idea no?