This has always been such a weird take for me. I know PC gamers get caught up in hardware arms races but Nintendo handheld consoles have always been about having fun playing cartoony games. Animal crossing doesn’t need much horsepower to trap my kids into putting a thousand hours into their islands.
Nintendo has never needed to compete on frame rate or vRAM to be successful
People always have this argument that it's hard to port for it because it's so underpowered. But ultimately, games like Balatro or Neon White absolutely shine on Switch, while extremely graphic intensive games like Indiana Jones and his Big Circle cannot run
Nintendo has correctly decided that if it can attract all the low requirements indie titles plus offer its own games, then it has an extremely compelling product. Which it does, it outsold Sony and Microsoft combined.
Developers are asking for it. It shares a market with bigger consoles but in terms of capabilities it's closer to a tablet.
It's hard to cross-port from PC/PS/Xbox to Switch because it is so far behind. Not impossible, of course, but if you're choosing to target Switch from the start you're often committing to building your game on all platforms without using some modern technologies or new engine features. If you're backporting from a more powerful platform then you might need to make significant (expensive) changes to get it running.
It's mostly a developer cost calculation, but one that can keep new titles away from the Switch.
(Could GTA VI run on Switch 2? I'm pretty sure Nintendo would want that even if it's not their traditional user base.)