Why though? Ballooning budgets from chasing production values and graphics are strangling the AAA sector, with mass layoffs, studio closures, and games taking 6+ years to come out.

Why on earth would Nintendo want to invite all those problems?

Because they owe it to their fans.

Gonna assume this is either sarcasm, or the implication that fans deserve to be punished with 6+ year waits for games to come out for their various misbehaviours.

People have been claiming for years that if big studios made AA games they’d be super popular but anytime it happens it’s a massive flop. Games like Kunitsu-gami and the Prince of Persia metroidvania game were well received but failed to hit sales targets, and visible player numbers were very bad. South of Midnight just released and peaked at 1438 people on Steam(Blue prince was around 10x as a true indie game that also launched day one on Gamepass and PS Plus)

People like to buy small indie games and big AAA games from the big companies. AA games tend to fall through the cracks.

Nintendo games are for the most part very polished and receive great acclaim, so I don't see the need of increasing team size/devtime/budgets for the sake of it.

Pokemon though.

I don't think increasing the resolution and fps in a free switch 2 update is going to fix that.

Game Freak please increase the production value of your 20m+ selling franchise. TY.

Yeah Game Freak is very much their own beast, and very different from Nintendo proper and their subsidiaries in terms of the standard of their work.

Nintendo's games at least look good and run well for the hardware they're on. Gamefreak it seems couldn't optimize their way out of a wet paper bag.

Yeah, Gamefreak isn't Nintendo, but with how big and successful Pokemon is, they should have the money to support a decent dev-team. I think with 2D it was still mostly OK, especially Sun&Moon looked fine mostly. But the transition to 3D they still struggle with. This starts to become ridiculous. It was especially egregious with the Switch 2 Direct. They showed multiple beautiful Switch games that got an Switch 2 upgrade pack, and then followed with Pokemon. Directly after Metroid even. But even Kirby or Mario Party look so so much better than Pokemon. Gamefreak really needs to get their shit together.

AAA can be $100 for all I care. I only buy them at half the price anyway with sales occurring a year or two down the line.

Because they are making all that profit. Same as Netflix, they owe the costumers who are paying them to keep quality up. I'm not saying the games aren't quality (although there has been more misteps away from that Nintendo seal of approval the last few years) just that they can make a higher quality product and modernise. Adding VA for Zelda and not for Link causing cringey mo monologues where there should be dialogue is one foot forward and one foot in the past, that's just one example. They can still make all of the profit, selling millions of copies of games every year without proper regular sales is nonsense while they remain stagnant in all these areas and now put out hardware where the third party games look significantly better than their own software, they even seem to be cutting back on all the cool detail that would help this feel less apparent. They need to look at Astrobot and see how premium that game looks and feels with all the attention to detail and if not meet that at least attempt to meet it now that they are looking for the prices higher than anyone else in the industry. Nintendo are like Atlus, they just don't evolve anything, sometimes regressing in quality (Metaphors ailising and Mario Karts customization for example) and charge at the highest end. Mario oddessy when you go back to the airship, it felt like a mobile phone game. You can give a pass to somethings cause of hardware but now they don't get that pass cause the Switch 2 is clearly far more capable than MKW or DKB even with the formers open world and the latters destruction physics which we had on PS2 with CTR and Red faction decades ago. 

TL;DR. Make product as premium as possible for the cost. 

That's so far from the Nintendo seal of quality it should have been scraped. Same with Star Fox and other stuff these days like Echos of Wisdom which the latter had such archaic UI. The quality is falling and the prices are going up.