The main thrust behind their foray into hardware was that they feared being cut off. Whoever controls the terminal has the power to push users toward their own platforms (Bing, Microsoft 365, etc), and I guess they could see the writing on the wall and wanted to have a platform they control.

As for this project, I think part of it is just the conclusion of internal power plays between Chrome and Android. The other half is probably the same fear as before: if Microsoft puts their own AI closer to the user, Google will have a hard time keeping up. So the best defense is to have your own "AI-first" OS.

Keep in mind that Microsoft doesn't need to win to hurt Google's bottom line. For example, if Bing captures 5% of search through OS- and browser-bundling strategies, that's still a 5% that Google can't have.