If true, this tells me that AMD is struggling to get gaming performance out of MCM, and wasting resources on large GPUs is stupid, so they're making shrewd, but I think smart/sensible decision. They literally would have to offer double the performance of NVidia at this point to make just inroads to market share. They will never ever be able to overcome the mindshare poison that Nvidia has been spending decades building. Even though basically everyone (including Nvidia fans) hate Nvidia at this point and it still doesn't matter.
People acting like you need a halo product are just nonsense, and that won't matter unless AMD doubles or triples NVidia's performance (and that's simply not feasible), and it'd have to happen for probably 5 years straight for even that to change things. Plus gaming stuff that gets the most sales and hype these days are stuff like the Steamdeck, Switch, and the like (the Steamdeck competitor devices that have come out recently). Heck I think it'd be more sensical (and likely far more lucrative) for AMD to partner with Samsung to make an Android based Switch ripoff.
Plus you guys can have fun paying $3500 for Nvidia's DLSS^3 (indicating it just makes up the path traces, the frames, and even the assets! - look ma, just check a box you don't even have to program a game or create assets for it, think of all the money you can make as a game developer then! honestly with the hilarity of AI generation of images that sounds more interesting than Call of Duty 57/Halo 15/etc) as enthusiast market products become prosumer/enterprise hardware.
Personally, I think AMD should ditch the current AIB dGPU market entirely. Especially since the cards are large enough to warrant it now. Just turn them into full blown dedicated external gaming boxes by integrating CPU cores either on die or MCM with the I/O die basically managing shared cache and memory system as well as a fast NAND controller setup (imagine what 10TB/s SSD bandwidth would enable as far as asset swapping and the like). Basically create a unified memory system hiearchy (large cache to sizable but not outrageous GDDR pool or HBM if it ever becomes viable again, to fast and large enough to load very large AAA game - so like 128-256GB of very fast NAND, then have a normal SSD slot for long term storage). They could possibly make gaming focused CPU designs, but not sure that's necessary with the large shared cache/memory setup. They could integrate dedicated hardware bits somewhere like they do for consoles.
For normal client focus on laptops and small boxes, which will drastically reduce costs for OEMs who can then integrate the small boxes into all sorts of stuff. Could even push that to other markets (streaming boxes with more capability, integrate as the control boxes for TVs, etc).
Which if they wanted to do a half-step to get there, they could. For an idea of what that could look like check out what Khadas is doing:
Khadas
mind.khadas.com
They could also do other steps where they work their I/O to support and then require premium or gaming laptops to have like 2-4 USB 4.0 Gen 2, with each being able do 120Gb/s one way or 80/80 split which would make eGPUs much more viable (especially if you double or triple that; 120Gb/s). This would be a relatively quick solution instead of waiting for new external optical data standard for consumer, although that would be preferred. It lets the laptop cooling handle just the CPU, and 2-4 Gen 2 would offer 30-60GB/s of bandwidth. Plus if they add just a current PCIe Gen 4 level SSD slot to the eGPU immediately, letting it put game assets there - maybe with some pre-config for like decompression or something, utilizing the new DirectStorage, should further help reduce the bandwidth need between the eGPU and the CPU part as well.