Yes.

That's the short answer.

This doesn't mean it's viable in 2023, or 2024... But the Series S will be supported for the rest of the decade and with diminishing returns, there will be many games that will continue to ship on Series S for as long it has a userbase actively using it.

Reason to doubt is not technical but more the fact that there doesn't appear to be a huge market for these high end gaming handhelds atm, but things could change. Our only real comparison is Steamdeck but it's not widely available or even marketed at the general public. Microsoft could see it as a way to make more grounds in developing Asian markets.

What you're saying here doesn't make sense.  Game pass (the Cloud Gaming functionality) is very clearly intended to eliminate the need for hardware.  MS says it all the time "we want to bring games to more people, no matter where they play".   This cloud functionality serves mostly the same purpose as hardware in the traditional gaming model. If people want to play games, they'll have to pay you to do it. Not every game available will be developed by Microsoft, but Microsoft will be making money from those games.  The difference here is that Microsoft will not have to lose a bunch of money on the front end to make money later. They'll just be selling a profitable service the entire time.

It is possible that the profitability of software will be driven down, as the business may become a bit more competitive once it's not tied to hardware. But, the profitability of the business overall, at least in theory, should be greater, because they eliminate the loss leader that gets people into the ecosystem.

Totally disagree, if XCloud was designed to get rid of hardware there would be no need to add it to a subscription service that allow you to download your games on hardware.  Not sure you understand that main point about GP.  MS understand that total cloud is not viable for a great deal of the countries that they have expanded GP to.  Why would MS limit their revenue stream to just cloud, getting rid of console hardware and GP ability to download games directly.  That doesn't make sense because a lot of people do not have the infrastructure for cloud only.  Also a lot of people do not want a cloud only device as their main source for games.  MS would be basically removing themselves from a huge market for no real gain.  Its the reason why XCloud is an add on component to GP.  MS covers both revenue streams and userbase.

We are still a ways away from a total cloud solution that is why you still will need both for at least another 10 years.  Its the reason why Stadia failed and why MS never went to that model.  The infrastructure isn't there to support it.  Also with most providers having cap limits it would be way to expensive for most people to even go full cloud.

Yes, we're definitely a good ways away from cloud only. I'm not suggesting that MS is exiting the hardware business in the immediate future. I'm saying that's their long-term goal. Game pass seems pretty clearly to be a long-term proposition for them.  

What I'm saying is that it is unlikely that they are going to get into a new segment of the hardware business.  They want to be less reliant on hardware, not more. 

When you say long term goal, I see it as a very long term goal but the immediate future, a mobile device that fits right into the middle of a mobile phone but the size of the switch, powerful enough to run current gen games at probably 720P would be a damn good device for MS to invest into as the Series S fits that bill.  Unlike Sony, MS already have a low end device, switching it to a mobile one probably at the same 300 price point would probably keep the Series S selling at a good clip.  

Also that device isn't a new hardware segment.  Its the same device, re-engineered for a more flexible purpose.  This would be no different then creating a slim version.  If you think about it, it fits right into the refresh market that was very popular for Sony.  MS basically take the same advantages from Sony with a new cheaper model and the switch with its mobile capability and combine them into one.

I'm no expert, but I'm pretty sure it's not as simple as just die shrinking a chipset designed for a home console and stuffing it into a handheld. 

The demands of a portable system are quite different than a big box plugged into the mains. You can't just use the same RAM, for instance. You'd have to change the hardware to the point where it wouldn't be "the same device" any more.

It's actually not that different the main challenge is to get targeting a low enough TDP. Once the TDP is down, all components associated with power delivery can also be reduced in number and/or scaled down. Also, Mobile devices getting power from a battery are more efficient since it doesn't need to convert the power from AC to DC.

There are already many such devices that exist today, the steam dec, ayaneo 2, and OneXplayer. All of those use RDNA 2 graphics the same as the SeriesX and S. They are not as powerful as the S but not that far behind either. Asus is also looking to produce its own with the Asus ROG Ally. Even if MS doesn't end up producing such a device on their own, a series S-like performance target in a mobile device is really only like 1-2 years away using mid-range laptop apu. 

They tend to have bottlenecks and strengths in different places though, bandwidth for example is often lower for portables, for example the Steam Deck and PS4 aren't that far apart in power, but the PS4 has twice the GB/s, while Switch's bandwidth is only slightly above PS3/360 despite it outperforming them significantly in GPU and RAM capacity.

Review the video I posted as the person goes into great detail on that subject. 

As we have seen these last 3 months Xbox hardware is basically dead again outside of North America, UK and Oceania for another gen, so I seriously doubt Microsoft will release a handheld anytime soon.