I would argue that 3D games and consoles happened. People started demanding more from games: They had to be bigger, more immersive, visually more advanced. The niche gamers still existed, but the publishers didn't want to cater to them, for the most part.

The Broken Sword series is actually notable for surviving this trend, by transitioning to 3D and being console-friendly.

Fortunately, "the long tail" also happened, and the market has expanded in scale and improved ease of distribution (Steam, Itch, etc.) to the point that it's no longer true that every game has to be a big-budget "AAA" game; there's plenty of room for tons of niche stuff like adventure games, and it can be profitable.

My guess is that point and click adventures are not very profitable. There are no in game trinkets to sell, they don't fit a subscription model. I guess you can slowly release "chapters" and sell them independently and some developers do it these days but the user churn should be high as there is almost no desire to replay once you complete a chapter.

It isn't dead. New games have been coming out ever since it's proposed death back then and all the way through to today.