Yes, it is technically possible that Apple could enable 120 Hz external-display output on M1–M4 iPad Pros through an iPadOS/OTA update, but it isn't confirmed that this is purely a software limitation.
The M1–M4 models have Thunderbolt/USB4 up to 40 Gbps, which provides more than enough raw bandwidth for 1440p/120 Hz. Their GPUs and internal display pipelines can also handle high-refresh-rate displays. However, the external-output limit may depend on the DisplayPort implementation, display controller, firmware, or Apple's software configuration, not simply the 40-Gbps port.
Apple officially limits the older models' external-display specifications, while newer iPad Pro hardware supports higher-refresh external output.
Bottom line: An OTA update could potentially unlock 120 Hz on M1–M4, but without Apple confirming that their complete external-display hardware supports the required mode, we can't say there is “no hardware limitation whatsoever.” If the hardware already supports the mode, then withholding it would effectively be a software/product-segmentation decision.