Hypothesis: it’s not the CPU, it’s the USB controller saturating the thermal mass. So instead of the CPU or GPU going bonkers, the body gets too hot and they lose thermal dissipation capacity for the normal usage and then overheat and then throttle. They go 100% on the graphs because the throttling reduces frequencies and then load becomes too heavy. Experiment other adapters and monitors.
I'm not sure if I entirely understand your hypothesis, but I don't think it's 100% on the hardware - I don't think it's due to the hardware of the hardware. I also have an M2 Air and a few things seem to consistently make my machine get hot and chug and dump the battery. Idling with my machine plugged into my 4k 144hz monitor isn't an issue, but going on a Zoom call or having one too many video streams open while doc…
My point here is that it’s not that the CPU (or the SOC to be exact) cannot handle such loads. It just that it cannot handle it when you have the device connected via USB-C and charging via USB-C too. Also, if using cheap usb-c to display port or adapters.
The corollary of this is that if that would even be possible, were your display wireless, or if you were generating frames by saving them on the disk, the CPU would not throttle.
Of-course that is of little utility here because the end result is the same: CPU gets slow, be it because of CPU, GPU or whatever.