The O2 sensor was first introduced in 2020 when COVID was running rampant, there were no vaccines, and no at-home test kits. Recognizing unexpected drops in O2 saturation was a crucial part of COVID preparedness. In this setting the O2 sensor was a major draw, causing me to upgrade from an AW 5 to AW 6.
Since then, things have changed. I'm vaccinated out the wazoo and can do a home test anytime it even crosses my mind that I might have been exposed to COVID. So, I now very rarely use the O2 sensor and I don't even have it on my primary watch face any more.
Besides, I tend to keep my old Apple Watches, so if a new one doesn't have an O2 sensor and I really feel the need to use a pulse oximeter, I can simply pop on one of my old Watches (including the Ultra 2 I bought the day before the ban went into effect) and take a measurement.
So, as far as I'm concerned, AAPL can simply reissue the AW without an O2 sensor and just flip Masimo off.
If they swapped the O2 sensor for something even more useful (like a BP monitor) that would be frosting on the cake. Or maybe they could just drop the price a little and pitch it as a new, more economical version. The alternatives abound...