My understanding: Making emulators is legal. Valve helped produce Proton which is an emulator that runs Windows games on Linux (because their steam deck runs on Linux). Nobody is going to sue Valve for creating a way for people to play their Steam games on the steam deck.

Assisting people bypass copyright protections is not legal. Yuzu devs were sued for this reason, and not because they created an emulator. Nintendo had evidence of the devs working with pirates and helping people run known pirated software. They also were making a lot of money from doing this, which makes Nintendo's claim even stronger since they can use that as proof of financial harm.

So long as devs only work on the emulator and do not assist people with running pirated games on it, they theoretically should be fine. Of course they could still get sued and I'm sure it'd be expensive even if it's ruled they're not doing anything illegal.