This thing is way overpowered for just running Switch games at 4K as others have noted. This is definitely a full generational leap over the Switch, maybe even more than that when factoring in the implications of DLSS.
It's not overpowered to run games at 4K/60fps/ray tracing. Not at all. Not sure why people are saying that?
Nintendo probably was too cheap to commit to a "half-stop" Pro style redesign, since Nvidia probably is also not down for giving up their tech for cheap (you want a custom design, even one that's lower powered, Nvidia wants their $$$$ either way, AMD maybe gives Sony/MS better pricing on custom designs for PS4 Pro and XB1S).
I don't believe this at all.
Nvidia probably approached Nintendo in ~2018 and told them what their new mobile SoC (Orin) is expected to do, what it can do for gaming. Told them all about the value of DLSS and tensor cores.
Just like they approached them with the Tegra X1 in ~2015.
Nintendo saw the value it could add to Switch gaming. Nvidia worked with them to design something that is cutting edge for a mobile device when it comes to gaming, and that would fit within the Switch ecosystem.
Switch success was roubust and limitless in 2018/2019 and in no way was Nintendo looking beyond the ecosystem then. When they finalized in ~2019/2020 what the chip would be and how it would be used, it was to be a Switch power upgrade model for a mid gen release. Hence, putting out devkits in 2020.
I think people underestimate how much Nvidia wants to profile their mobile SoC tech (always been behind AMD on that front) especially in areas outside of automotive, like gaming.
They wouldn't let Nintendo "half ass it" or release what's supposed to show the current tech of Nvidia mobile…that isn't. Nvidia has a specific investment in this. They aren't overcharging Nintendo.
So in 2019/2020 they probably committed to this chip to be the Switch 2 basically, if you're going to spend money on a new chip design, it might as well cover you for your successor system, which they assumed around 2019 they might need by late 2022/2023 (makes sense, 6 years or so post-Switch 1).
Counterpoint:
If you now plan on supporting a system with games longer than 10 years (what a conventional console lifecycle is), you design a model to keep engagement in Switch gaming for another ~4 years to keep people in the ecosystem who might otherwise drop out due to "aging".
Exactly how "pro" mid gen upgrades are explained to why they exists (see ps4 pro and xbox one X)
The money spent will reflect in the price of this DLSS Switch, to be sure.
Another reason why Nintendo would be comfortable releasing such an expensive console…it's not a replacement for anything, they don't expect everyone to have moved to it the next two years. (What console makers do expect when they release a successor) They expect it to be the lowest selling hybrid Switch model. (Just like the more expensive mid gen upgrades to the xboxone and ps4 pro were the lowest selling models)
It's going to be released as for "those who want this option" not as "this will be the only option for Switch gaming two years from now"