so they wanted to sell Itanium for servers, and keep the x86 for personal computers.

That’s still complacency. They assumed consumers would never want to run workloads capable of using more than 4 GiB of address space.

Sure, they’d already implemented physical address extension, but that just allowed the OS itself to address more memory by enlarging the page table. It didn’t increase the virtual address space available to applications.

The application didn’t necessarily need to use 4 GiB of RAM to hit those limitations, either. Dylibs, memmapped files, thread stacks, various paging tricks, all eat up the available address space without needing to be resident in RAM.