You are missing several points:
First, density. Cloud providers have huge machines that can run lots of VMs, and AWS in particular uses hardware (”Nitro”) for hypervisor functionality so they have very low overhead.
Cloud providers also don’t do “hardware” partitioning for many instance types. AWS sells “VCPUs” as the capacity unit; this is not necessarily a core, it may be time on a core.
Cloud providers can also over-provision; like airlines can sell more seats than exist on a plane, cloud providers can sell more VCPUs than cores on a machine, assuming (correctly) that the vast majority of instances will be idle most of the time, and they can manage noisy neighbors via live migration.
And lots of other more esoteric stuff.