This understates the impact of the move. Everyone already was aware that Google was better at running cloud infrastructure than at making AAA games when they started their internal studios. This looks considerably worse than having never tried to make games in internal studios.

Something like Stadia requires customers to believe that it won't go away. Google, given their long history of mediocre commitment to projects, already had considerable skepticism for Stadia from Day 1. Shuttering their internal studios is just one more signal to skeptical customers that Google really doesn't know what they are doing and doesn't care.