Nintendo has a diverse catalogue of game IPs because they are hyper focused on producing new genre kings that might be iterated generation after generation.
Nintendo isn't a reactionary company that copies what is already popular just to cash in, they are a trend-setter by vocation.
Fire Emblem Three Houses might sell "just" 5 million units but there isn't any other strategy RPG that sell as well.
Xenoblade 2 might sell "just" 2-3 million units but it's distinctive compared to any other RPG on the market.
Metroid Dread might sell "just" 3-4 million units but the franchise gaves the name of a whole genre and no other game in the genre sell as much at $60 a pop.
Mario Kart might be classified as a racing game but the underlying game mechanics are totally different from the games in the same genre that preceded it, so much that it create its own sub-genre. Same for Splatoon.
When Virtua Fighter and Tekken were all the rage and everybody were releasing copycats, Nintendo released a certain fighting game with completely new game mechanics.
In the past Nintendo has funded games targeted more toward an adult audience like for example Eternal Darkness and Spirit Camera (the Project Zero spin-off for 3DS) however in both cases it was the game mechanics that enticed them (for the former the Sanity System which Nintendo has patented, for the latter the augmented reality integration with the "cursed" booklet).
More than the characters, lore and story, it's about (a successful) new game formula what Nintendo is after.
Characters, lore and story are (among other things) what dress the gameplay.
That’s not what Nintendo is about. Just like why Sony doesn’t make something like Fire Emblem or Animal Crossing.
Unlike Nintendo*, Sony actually has an history of funding copycats inspired by other companies genre kings like for example Final Fantasy Tactics (Jeanne D'Arc), Smash Bros (PlayStation All-Stars Battle Royale) and Zelda (Alundra).
But all those attempts resulted in games that sold much less than the source material and that could not sustain themselves for many generations.
Nowadays producing games is much more expensive than in the past which is why Sony reduced such practice.
* It could be argued that the whole Mario Tennis/Golf series got birthed due to the success of Everybody's Golf however what really happened is that the original creator of Everybody's Golf, Camelot Software Planning, broke off from Sony early on and allied with Nintendo.
Sony would eventually (after two decades) stop producing new Everybody's Golf because the series have never taken off outside Japan and the japanese sales kept declining whereas to this day Camelot continues churning out Mario-branded arcade sport games for Nintendo consoles (and Everybody's Golf spiritual successor by Clap Hanz was also released for Switch).