Microsoft will soon release two different versions of their next-gen gaming console. The Xbox Series X ($499) is the full-powered 4k variant, and the Series S ($299) is the smaller, and less powerful, 1440p gaming box. Some publications have described the Xbox Series S as the budget variant of Microsoft’s next-gen consoles, but I feel that categorizing the Series S as the inferior budget version is somewhat misleading.
4k and 1440p refer to the render resolution output onto a TV or a computer monitor. A higher render resolution generally has a more detailed picture quality than smaller resolutions like 720p or 1080p. For gaming, this increase in render resolution has a measurable performance impact. 4k is harder for gaming hardware to drive than 1440p or 1080p. This translates to fewer frames per second (FPS) in-game for a game running at 4k than any of the lower render resolutions. A console targeting a lower output resolution like 1440p and 1080p does not need the same caliber of hardware as a machine targeting a 4k resolution to maintain a playable framerate.
Microsoft has indicated that the Series S will run 1440p games at up to 120fps, and the Series X will run them at 4k up to 120fps. The “up to” qualification is important. 4k at 120fps will likely be rare, with 30 and 60 being the far more common range for 4k titles. The vast majority of consumer 4k television sets don’t output at a refresh rate of above 60hz at 4k. For a graphically intense next-gen title, a 4k resolution running at 120fps is unlikely. 120fps at 1440p is much more attainable, even with a less powerful graphics card like the one found in the Xbox Series S.
If you look performance tests for the latest generation of Nvidia graphics cards at 4k, even with the Nvidia 3080, Red Dead Redemption 2 only has an average FPS of 85-90. Last gen cards like the 2080ti and 2080, which are the types of cards that would have been running Red Dead on PC around release, run the game at 53-67fps.

At 1440p, the FPS for the 3080 jumps up to 127-131 FPS. For the 2080 variants, it runs between 86-117 depending on which version is being tested.

At 1080p, the FPS increases are an additional 20-30fps with the 3080 running Red Dead at 152-167 FPS. The 2080s run the game at a range between 109-139.

As the resolution goes down, FPS increases. Depending on the title and graphics fidelity, 120fps at 1440p should be possible for the Series S. But as you can see from the benchmarks above, 120fps at 4k, even on an old title with a 3080, is a much more difficult performance metric to hit.
Why does this matter?
The notion that 4k is the yardstick by which we measure next-gen gaming is one that I find dubious, particularly for multiplayer games. The competitive PC gaming market has resisted the jump to 4k gaming completely. Even 1440p gaming monitors are almost non-existent with hardcore shooter fans. The website on-winning lists the hardware of popular professional gamers across a variety of different games. For Fortnite, only a single gamer is running the game above a 1080p resolution.

With Valorant, one person is running the game at 1440p. The rest are 1080p or lower:

For Overwatch, it’s the same:

None of the players are running at 4k. The reason for this is that higher FPS gives players a competitive advantage:
1080p is the sweet spot for many in PC gaming because it gives hardware an FPS cushion as new games release that require increased power due to improved graphics quality. Dropping 20-30 fps off a baseline in performance isn’t noticeable if you have a machine that is capable of 120+ fps, but if you’re running 60fps at 4k, and a new game releases that your hardware can only run at 30-40fps, the experience is going to be terrible comparatively. 1080p gives players a longer hardware lifecycle because it’s easier to run.
For competitive console gamers, high-refresh-rate, low-input latency computer monitors are superior in both cost and performance. The most affordable of these come in the 1080p variety. High refresh rate 4k TVs and monitors are expensive.
1080p gaming monitors like the AOC 24G2U cost around $200 for 1ms input latency. High refresh rate versions typically cost more, but you’re not going to dip into the 240hz refresh rate versions for a gaming console. A 144hz monitor like the 24G2U is all you need as consoles can’t output anywhere near 240fps.
A 144hz 4k monitor like the Acer Predator XB273K retails at around $800 for a 4ms input latency. Large 4k televisions can be even more expensive, particularly if they run at a high refresh rate with low input-latency. If you choose to purchase a 4k monitor, it can cost up to $600 more with an extra 3ms of input latency versus a 1080p monitor.
For competitive gamers, both on the console and the PC, higher FPS and thus lower resolution is the most important target for a next-gen console. 4k is worse than meaningless to this demographic as it typically means lower frames per second.
For competitive gamers, the lower-cost Xbox Series S might be a better choice than the more expensive and more powerful Xbox Series X. Framing the Series S as budget-oriented is misleading until we know how both consoles perform. If a player is gaming on a 1080p or 1440p monitor or TV, the Series X won’t offer any performance advantages versus the lower cost gaming console, at least on paper. This assumes that the Series S can maintain high FPS on newer titles, which Microsoft themselves have indicated it can do:

If the Series S can output high-fps at lower resolutions, there is no point in shelling out the extra $200 for the Series X unless you want to game at a 4k resolution. The only caveat to this is the possible scenario where the Series S proves unable to maintain high and steady framerates. In that case, the Series X would be the better choice, provided that it runs games at a higher FPS on a lower resolution gaming monitor. But as we don’t yet have performance metrics for new titles running on either console, it’s difficult to label the Series S as the budget version. If developers can consistently hit the 120fps target in multiplayer titles, the Series S will be the best choice for competitive gamers as they won’t be gaming at 4k because of the lower performance metrics that come with running games at such a demanding output resolution.