React: Create component inside a component (?)

I recently observed one issue in my component rendering. Consider this code

const App = () => {
const [search, setSearch] = useState('');

const Users = ()=>  <UserList pattern={search}/>;

return (
    <div id="app" className="home-page">
      <Header />
      <WelcomeSlogan/>
      <Users/>
    </div>
  );
}

Here, the 'Users' component is re-rendering whole list whenever the search string changes. This is because in functional component, whole function body gets execute again (except hooks part) whenever local state (search) changes. What we want is only unmatched items to be removed from list. So the simple fix is to not create a component inside functional component.
Using

<UserList pattern={search}/>

directly inside return will fix our issue.

return (
    <div id="app" className="home-page">
      <Header />
      <WelcomeSlogan/>
      <UserList pattern={search}/>
    </div>
  );

So the take away - NEVER CREATE A COMPONENT INSIDE ANOTHER FUNCTION COMPONENT.

However, this is not true in case of react class components. Since only render() method gets executed when re-rendering, we can create other (functional) components inside a class component. Like below:

class App extends React.Component {
constructor(props) {
      super(props);
      this.state = {
          search: ''
      }
      ...
  }
getUserList() {...} // returns List based on this.state.search
getComponent() {...} //create component here. returns UI element(s)

render() {
  return(
   <div> 
     {getUserList() }
     <div> { getComponent() } </div>
   </div>)
}

This however works well. The getUserList component does not re-render whole list when search changes. Which is desired behavior. This might be because:

1. Functions are not part of class instance.
2. Only render function gets called when component re-render.

Hence, I think, IT's OK TO CREATE FUNCTIONAL COMPONENTS INSIDE A CLASS COMPONENT(?).

This was a good lesson for me and I can say I understand JS and React a bit better than before. (Feel free to add/correct me in comment section)

Thanks All.