diff --git a/packages/next/src/server/app-render/walk-tree-with-flight-router-state.tsx b/packages/next/src/server/app-render/walk-tree-with-flight-router-state.tsx
index 3876c9356b35d..1c568b61fd6c3 100644
--- a/packages/next/src/server/app-render/walk-tree-with-flight-router-state.tsx
+++ b/packages/next/src/server/app-render/walk-tree-with-flight-router-state.tsx
@@ -108,14 +108,16 @@ export async function walkTreeWithFlightRouterState({
     // Explicit refresh
     flightRouterState[3] === 'refetch'
 
+  // Pre-PPR, the `loading` component signals to the router how deep to render the component tree
+  // to ensure prefetches are quick and inexpensive. If there's no `loading` component anywhere in the tree being rendered,
+  // the prefetch will be short-circuited to avoid requesting a potentially very expensive subtree. If there's a `loading`
+  // somewhere in the tree, we'll recursively render the component tree up until we encounter that loading component, and then stop.
   const shouldSkipComponentTree =
     // loading.tsx has no effect on prefetching when PPR is enabled
     !experimental.ppr &&
     isPrefetch &&
     !Boolean(components.loading) &&
-    (flightRouterState ||
-      // If there is no flightRouterState, we need to check the entire loader tree, as otherwise we'll be only checking the root
-      !hasLoadingComponentInTree(loaderTree))
+    !hasLoadingComponentInTree(loaderTree)
 
   if (!parentRendered && renderComponentsOnThisLevel) {
     const overriddenSegment =
diff --git a/test/e2e/app-dir/app-prefetch/app/page.js b/test/e2e/app-dir/app-prefetch/app/page.js
index 17c9aeae53c0b..ccded0f324b50 100644
--- a/test/e2e/app-dir/app-prefetch/app/page.js
+++ b/test/e2e/app-dir/app-prefetch/app/page.js
@@ -8,6 +8,9 @@ export default function HomePage() {
       <Link href="/static-page" id="to-static-page">
         To Static Page
       </Link>
+      <Link href="/prefetch-auto/foobar" id="to-dynamic-page">
+        To Dynamic Slug Page
+      </Link>
     </>
   )
 }
diff --git a/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/layout.js b/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/layout.js
index a9123d41fc185..f404ca3e0a91f 100644
--- a/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/layout.js
+++ b/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/layout.js
@@ -2,7 +2,18 @@ import Link from 'next/link'
 
 export const dynamic = 'force-dynamic'
 
+function getData() {
+  const res = new Promise((resolve) => {
+    setTimeout(() => {
+      resolve({ message: 'Layout Data!' })
+    }, 2000)
+  })
+  return res
+}
+
 export default async function Layout({ children }) {
+  const result = await getData()
+
   return (
     <div>
       <h1>Layout</h1>
@@ -10,6 +21,7 @@ export default async function Layout({ children }) {
         Prefetch Link
       </Link>
       {children}
+      <h3>{JSON.stringify(result)}</h3>
     </div>
   )
 }
diff --git a/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/loading.js b/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/loading.js
index 5b91c2379fa9c..9105a53b67e8f 100644
--- a/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/loading.js
+++ b/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/loading.js
@@ -1,3 +1,3 @@
 export default function Loading() {
-  return <h1>Loading Prefetch Auto</h1>
+  return <h1 id="loading-text">Loading Prefetch Auto</h1>
 }
diff --git a/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/page.js b/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/page.js
index b6aa1a5033af3..23c8bdc9b5cb1 100644
--- a/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/page.js
+++ b/test/e2e/app-dir/app-prefetch/app/prefetch-auto/[slug]/page.js
@@ -3,7 +3,7 @@ export const dynamic = 'force-dynamic'
 function getData() {
   const res = new Promise((resolve) => {
     setTimeout(() => {
-      resolve({ message: 'Hello World!' })
+      resolve({ message: 'Page Data!' })
     }, 2000)
   })
   return res
@@ -13,9 +13,9 @@ export default async function Page({ params }) {
   const result = await getData()
 
   return (
-    <>
+    <div id="prefetch-auto-page-data">
       <h3>{JSON.stringify(params)}</h3>
       <h3>{JSON.stringify(result)}</h3>
-    </>
+    </div>
   )
 }
diff --git a/test/e2e/app-dir/app-prefetch/prefetching.test.ts b/test/e2e/app-dir/app-prefetch/prefetching.test.ts
index df83f886da1a1..6fabca7170f61 100644
--- a/test/e2e/app-dir/app-prefetch/prefetching.test.ts
+++ b/test/e2e/app-dir/app-prefetch/prefetching.test.ts
@@ -263,7 +263,8 @@ createNextDescribe(
       })
 
       const prefetchResponse = await response.text()
-      expect(prefetchResponse).not.toContain('Hello World')
+      expect(prefetchResponse).toContain('Page Data')
+      expect(prefetchResponse).not.toContain('Layout Data!')
       expect(prefetchResponse).not.toContain('Loading Prefetch Auto')
     })
 
@@ -297,10 +298,23 @@ createNextDescribe(
       })
 
       const prefetchResponse = await response.text()
-      expect(prefetchResponse).not.toContain('Hello World')
+      expect(prefetchResponse).not.toContain('Page Data!')
       expect(prefetchResponse).toContain('Loading Prefetch Auto')
     })
 
+    it('should immediately render the loading state for a dynamic segment when fetched from higher up in the tree', async () => {
+      const browser = await next.browser('/')
+      const loadingText = await browser
+        .elementById('to-dynamic-page')
+        .click()
+        .waitForElementByCss('#loading-text')
+        .text()
+
+      expect(loadingText).toBe('Loading Prefetch Auto')
+
+      await browser.waitForElementByCss('#prefetch-auto-page-data')
+    })
+
     describe('dynamic rendering', () => {
       describe.each(['/force-dynamic', '/revalidate-0'])('%s', (basePath) => {
         it('should not re-render layout when navigating between sub-pages', async () => {