Virtual machines are never a security boundary. If you configure them correctly, avoid all the footguns, and pray that there's no VM escape vulnerabilities that affect "correctly" configured VMs then they can be a crude approximation of a security boundary that may be enough for your use case, but they aren't a suitable substitute for entirely separate hardware.
Yeah, in some (rare) situations physical isolation is a more appropriate level of security. Or if you want to land somewhere in between, you can use VM's with single tenant NUMA nodes.
But for a typical case, VM's are the bare minimum to say you have a _secure_ isolation boundary because the attack surface is way smaller.
In the end you need to configure it properly and pray there's no escape vulnerabilities. The same standard you applied to containers to say they're definitely never a security boundary. Seems like you're drawing some pretty arbitrary lines here.
Its all turtles, all the way down.