A huge amount of the bulk in smart watches is the health sensors and vibration motor. Can easily slim things down if those aren't required along with a big display.
that makes sense, and now that I've seen proof that it's possible to build a watch-sized smartwatch, I'm even more puzzled that not a single one is on the market
There’s also competition aspect. Full iOS/Android is required to be relevant in the market, so all mainstream smartwatches integrates equivalents to literally late 80s supercomputer in them. There are exceptions like Xiaomi watches, but they’re low-end, low margin options.
I think it’s plausible that none of operational nuclear warheads were designed with supercomputer clusters more than half as fast as the latest Apple Watch. Resources packed into watches are that plenty.