For a while it seemed console games were either huge budget/$200 million/300 employee titles(IE Uncharted, Battlefield, Gears of War, Metal Gear Solid V, Gran Turismo) or independent titles made by a handful of people on a very limited budget(Shovel Knight, Fez, etc) and it seemed like there was very little middle ground. It appeared that AA games died during/just after the PS2 era.

However lately we have seen No Mans Sky which was developed on a good budget by 7-8 people and certainly does not look like a completely independent game as well as the likes of Firewatch, The Witness, Ori and the Blind Forest etc which are a league above the typical independent title. Yooka-Layee is a good example of a game made by a small team(20 or so) that graphically looks amazing, maybe not Ratchet and Clank calibre but not far off it.

I for one welcome this as smaller teams tend to not have inflated budgets and can take more chances and risks with innovation compared to a title like Halo 5 where it has to sell X million copies to recoup its costs and can't make radical changes to the formula. What do you guys think?

There's a ton of those games. I'd love to see more mid budget games. So A to AA titles.
AA being games like Recore, Souls (at least the first two) or GRavity Rush. Games with a not so gigantic budget.
A games basically being pretty low budget compared to a yearly CoD or games like MGS V but still having high production values>Firewatch, Ori and the likes.

What we need is a decent mix. I'm fine with those triple A games. But we need more games in the 1-15 million category.

The credits for Uncharted 4(especially) and MGSV blew me away. The Last Guardian has the feel of a small team but who knows how much money was poured into the game over ten years. The motion capture on Trico looks absoluely amazing and very extensive.

Yes we are and I think it's all thanks to the success of indie games.

Well...yes. The Indie scene has advanced WAY beyond its roots. I mean, there's still your retro platformers and stuff and that's all good. But even in the platformer scene you see increases in production value with things like Dust an Elysian Tale, Ori and the Blind Forest, and Shantae: 1/2 Genie Hero. And of course Ubisoft dabbled in this with games like Child of Light and Valiant Hearts. But you also have bigger, more ambitious indie projects actually managing to get somewhere. Shin'en of course have produced some impressive pieces, FAST Racing Neo being it.

In the indie side of this re-emergence, the real motivating factors are 1) the growing availability of highly intuitive tools like Unreal Engine 4 and Blender, 2) connectivity allowing teams to meet and assemble from across the world and also for teams to help each other with tutorials and such, 3) believe it or not, the economic issues that likely motivated many companies - including game companies - to "get lean" and in the case of game titles focus more and more on big budget "guaranteed" earners. So now you have people interested in doing smaller or more personal projects and big companies said "no" and over time, that group has decided to do it themselves. Crowd funding and the growing interest of independent investors in the game industry have no doubt also helped as developers are no longer forced to deal with big publishers.

And the success of indies has helped motivate big companies to dabble back in this field again, since they now have proof such projects can be winners.

Did they ever really go away? LBP, R&C, Sly 4, Gravity Rush, Puppeteer...

Dust An Elysian Tail and Ori and the Blind Forest aren't indie games - they're published by MS.

I wouldn't classify them as AAA games though.

Yeah, definitely not AAA - A or AA no doubt.

Dust is indie.  Indie is determined by the status of the studio in the course of development, not the means of distribution, these are video games not books.  Dust was developed by Dean Dodrill independently and the distributed by Microsoft on Xbox Live Arcade.  It was not funded and backed by Microsoft.  If it were, it would not now be on everything except a toaster and certainly not on PS4.

Ori, on the other hand, is more grey as I believe they may have been funded by Microsoft and not just under contract with regards to distribution.