And GPL V3 is only needed for hardware products that come with Linux.
True. So things like Android smartphones, smart TVs and other stuff. So if we want to protect the users of those devices, we need to switch Linux to GPLv3. I don't think there is any other way. Manufacturers would still be able to use the old version of Linux, but then they would miss out on new features and patches. It would make it harder for them to keep abusing their users.
So why should it be GPL and AGPL shouldn’t?
Are you asking why the FSF doesn't propose to license Linux under AGPLv3? I've never really thought about that. Maybe they don't think it would add anything?