I don't think people with RTX 5090s were really the target audience either. Anyone spending that kind of money on a GPU has probably already built a far more capable SFF PC for the living room, unless they were specifically waiting for this. Even then, the hardware specs made it pretty clear from day one that it wasn't going to compete with a decent gaming PC.I think the issue with the steam machine is that it was designed with the idea hardware would get cheaper overtime, not more expensive. I think that steam enthusiasts were the intended audience and that its original price point was going to make it cheap enough that people with 5090's would look at it and think it's cheap and a cool gimmick that they can stick under their TV. When I'm working on the road I often stream games from my laptop to my steam deck. I had always thought of the steam machine as a videogame streaming box, but the hardware shortage has made it too expensive to be a multi-role machine.
Realistically, I think Valve originally expected this to hit the market at a price that was several hundred dollars lower. Instead, they got caught in the same RAM and SSD pricing mess that hit the rest of the industry. By the time it launched, the hardware was already behind the curve, but I think Valve felt they had to release it anyway, even in limited numbers, rather than risk another "Steam Machine" situation where the project never really materialized.