Microsoft has been focused on cloud gaming via phones instead.
The Steam Deck has kick-started a wave of handhelds from some of the big names in PC gaming. Asus has its Windows-powered ROG Ally, Lenovo just announced its own Legion Go handheld PC, and Logitech released a cloud-focused handheld. AMD has been quietly arming an entire new wave of Steam Deck competitors, and that got me thinking: where’s Microsoft’s Xbox handheld?
With the Switch 2 probably releasing next year, the handheld market is already pretty crowded as it is. What would differentiate Microsoft's offering from the rest? They didn't bother even when the market was just DS/PSP.