The Tegra X1 is quite literally the best possible hardware Nintendo could have chosen for the Switch. Sure, it is underclocked, but it does provide many benefits over other options for SoCs.

The Tegra X1 has 256 "Maxwell 2" GPU cores, but offers a feature not found on desktop Maxwell GPUs; double speed FP16 support. The Switch has a 2X performance boost when executing FP16 code, this is a modern trick GPUs are starting to use now. The PS4 and Xbox One don't have this feature (but the Pro and Scorpio support double rate FP16).

Unreal Engine 4 was written to make extensive use of FP16. It is used in ALL of their shaders, for example. This is why Snake Pass was ported so quickly to the Switch and performs and looks favorably well against the PS4 version. I am by no means saying that the Switch is anywhere close to the raw throughput of the PS4, but the more modern GPU architecture helps put out impressive results with less effort, thanks to Nvidia's tools.

Sure, we have the immensely powerful Apple A9X, whose CPU cores easily outclasses the ARM A57/A53 big-little configuration found in the X1, but the graphics capabilities of the Tegra X1 make more sense in a game console. The software tools Nvidia is providing to Nintendo is a great asset for developers. This combination of hardware combined with powerful software tools is something Nintendo couldn't have done on their own.

But the PS4 and Xbox One are so much more powerful.

The Switch is a tablet. No desktop grade hardware would make sense in this form factor. The X1 is the best choice for this application.

What about the Tegra X2?

The X2 wasn't ready at the time the Switch went into production. Nvidia's own 2017 Shield TV is still shipping with the X1 chip inside. And the wait wouldn't have been worth it. The performance increase wouldn't have been that large. I'd expect a hardware refresh with the X2 sometime within the next 3 years, though.

What about developing their own SoC?

This would have cost Nintendo tons in R&D and the product wouldn't be as robust as Nvidia's Maxwell 2 architecture and software tools. Developing a modern SoC (something Nintendo has never done) would take tons of time and would increase the cost of the console immensely.

If you aren't convinced, Fast RMX is a great technical demonstration for the Switch. It runs in 900p/1080p (dynamic) at 60FPS with dynamic lighting (light scattering), physically based rendering (PBR) and post processing effects.

Digital Foundry: Fast RMX Analysis

In my view, Nintendo nailed it with the hardware in the Switch. I am excited to see more modern engines such as UE4 take advantage of it.