Following the underperformance of the Gamecube, Nintendo shifted their strategy from competing with Playstation and Xbox on the graphics front, to pursuing alternative strategies, to dual screens with DS to the hybrid form factor of Switch 1/2.

In hindsight, do you think this was the right call, and why/why not?

I'm not sure. Yes we got fun ideas like the Wii and Switch, but it became difficult to make good ports of certain third party games. It's a mixed bag all in all.

No, because there was no need. Its not a "one or the other" dichotomy. They couldve done both.

255 million systems sold in one generation and almost 2 billion games combined. So yes. Nintendo was losing marketshare and they knew they lost to Sony. They went from 90% of the console market in the early 90s to 15% with Gamecube. Iwata almost did not even go with the Wii but leave consoles and let Sony have the home console market and stick with DS, Reggie convince him otherwise. It's ironic the moment they stopped fighting Sony, they beat them,twice in the same generation. Wii U was a misstep but again Switch. 154 million and counting. MS has more money than god and could not do it. Sony is putting games on PC. They can't keep up with the market conditions. Nintendo changed the conditions. If Nintendo did not they would have left consoles and possibly hardware. Nintendo has been around since 1889. The reason is they adapt to a changing markets. They're smart. They are wealthy but would die chasing the arms race.

When it comes to Switch 1/2 you can't have both though, a portable device cannot be as powerful as a dedicated console.

Nor no longer split their development time for both. We saw them struggle to support both Wii U and 3DS. Dev costs are too high now. They had to converge.

It was the right call

While Nintendo gave up a significant portion of the market, this strategy created the sense that Nintendo belongs to a distinct submarket within gaming

The PS5, Series X|S, and PC storefronts (Steam, Epic, etc.) all compete for essentially the same audience. While this audience is at least three times larger than Nintendos player base, Nintendo has built a distinct image and value proposition that cant be found elsewhere. There is a clear reason to own both a Sony and a Nintendo console, or a PC and a Nintendo console

Nintendo console sales also appear to be quite inelastic relative to other consoles, that is, they don't seem to be meaningfully affected by how well competing platforms perform. Nintendo can achieve success regardless of how many units Sony and Microsoft sell combined

This can be somewhat dangerous, however

Because Nintendo consumer pool is already much smaller than that of other consoles and PCs, Nintendo must fight for consumer spending every generation. By contrast, other consoles and PC storefronts can take a large portion of their user base for granted

It's relatively easy to skip a Nintendo console: at worst, you miss a handful of exclusive games that are likely be re-released in the subsequent console anyway, which is a trivial trade-off for anyone who isn't huge a Nintendo fan. On the other hand, skipping both Sony and Xbox and not owning a PC for a whole generation (I'm thinking on ~7 years) effectively means giving up modern gaming and almost every major release every single year. That can happen, specially if you are a busy adult, but it's rarer

Look at where Nintendo is now and compare it to how the rest of the industry is looking? It's looking more and more like they were right all along.

We're beginning to see where the 'graphics' road leads.

As graphics and technology continues to rise, so do the development costs and time. And when the audience you're selling to is not growing and even diminishing in some cases, that leads to returns getting smaller and smaller to the point where you have to find other ways to make that money back or risk taking a loss and putting your business in jeopardy.

Nintendo dropping out of the race may have had some negative effects such as how they miss out on major 3rd party releases on Day One (Something that is starting to change). But you look at what that has led to with the Wii, DS, and now the Switch 1 and Switch 2? How can you argue that it was anything BUT the right move for them? It's worked out beautifully in their favor and it puts them in the EXTREMELY advantageous position of selling their hardware at a profit right from the start or damn close to it. Whereas Sony and Microsoft have to wait years before their systems can turn a profit on hardware sales. In the meantime, they use software and PSN/Xbox Live subscriptions to make it up. Combine that with the rising development costs I mentioned earlier and their audience not growing to match it and those profit margins start to get more and more slim for them. Meanwhile, Nintendo is making more profits than ever before.
And because they've carved out their own niche or audience that specifically buys their product, an audience distinctively different from that on PlayStation, Xbox, and PC - Combined with the rising development costs on those systems and THAT audience not growing to match it - Third parties and even Sony and Microsoft themselves, can't afford to ignore Nintendo any longer. They have to develop with them in mind as well with the intend of releasing and selling on Nintendo hardware.

So it's coming around full circle for Nintendo. Even though it got dicey at times (Wii U/3DS era), they've come out of it very healthy and practically vindicated. It would take an absolute PR and momentum-killing disaster that would put the Xbox One, PS3, and Saturn reveals to shame to shake them from the position they're in now.

Back then, yes. Nintendo gamecube commercially failed and nintendo probably couldnt afford to go powerful device again. Gaming was their only division. But nintendo has more stuff in the works now, as pack up plus switch was very successful. Theme parks, movies. Stuff they can fall back on if their risk taking dont pay off. If switch 2 is success, nintendo should go powerful home console, if console market still exists. But they shouldnt let art design take second place, if they decide to go all in with graphics.

Nintendo made the right call.
imho they followed 4 pillars:

1. It's simple, it's fun:

it appeals for everybody.
Make a game that appeals to a very large market ( a big name ), make it fun and, finally, make it very simple, so that you start to have fun in the first 10 min.

2. Nintendo standards:

Game looks bad? The story sucks? No voice acting? Nah... It's Nintendo, it's good.

"Hardware limitations", "Nintendo focus is gameplay", "it's all about fun", "we never played X for graphics/story", etc. reasons and excuses are endless...

Thanks to their strategy, Nintendo masterfully tempered the expectations of their public, and dictated "what you can expect from Nintendo". With this, they conquered their 3 pillar.

3. It's cheap to make:

Nintendo hardware is the cheapest to make and the same goes for most of their games, they are some of the least expensive to produce.
Not only they have the least investment on visuals, but they often have no story, voice acting, etc.

4. It's cheap to sell:

Nintendo hardware is the least expensive and their games also used to be very cheap!
I think they gave up on this pillar in favor of some extra profit money.

Anyway, Nintendo is always trying to send this message here:

https://youtu.be/A9rYZfWnYJ8?si=VsQ7PhE6GS4ZwDeG