Nintendo really only has a history of taking down fan remakes of existing Nintendo games or games that are charging money. They’ve never to my knowledge had a free fan game or romhack taken down nor do I think they’d have any sort of legal grounds to do so even if they wanted to. And this essentially boils down to a ROM hack. Which is almost certainly completely safe from Nintendo’s lawyers since it doesn’t contain any Nintendo made assets.
Machine learning algorithms are not people and are not ingesting these works the same way a person does. This argument is brought up all the time and just doesn’t ring true. You’re defending the unethical use of copyrighted works by a giant corporation with a metaphor that doesn’t have any bearing on reality; in an age where artists are already shamefully undervalued. Creating art is a human process with the express intent of it being enjoyed by other humans. Having an algorithm do it is removing the most important part of art; the humanity.