> 3.5 in. format hard drives can't be shrunk any,

You're looking at the entirely wrong kind of shrinking. Hard drives are still (gradually) improving storage density: the physical size of a byte on a platter does go down over time.

Optane's memory cells had little or no room for shrinking, and Optane lacked 3D NAND's ability to add more layers with only a small cost increase.