In what way is it not a process restart if I stop the process, install/upgrade NeoVim and start a new process?
The lifetime of files in ~/.cache/ is the same as what the FHS documents for /var/cache [0]:
> Application cache data. Such data are locally generated as a result of time-consuming I/O or calculation. The application must be able to regenerate or restore the data. The cached files can be deleted without loss of data.
Meaning: the persistence of such files is not guaranteed across application restarts. If vim (and also neovim) had intended for the undo files to outlive the program, the files should have been put in ~/.local/state instead -- as also explicitly documented by the XDG [1]:
> [XDG_STATE_HOME] may contain: [..] current state of the application that can be reused on a restart (view, layout, open files, undo history, …)
[0] https://en.wikipedia.org/wiki/Filesystem_Hierarchy_Standard#...
[1] https://specifications.freedesktop.org/basedir/latest/#varia...
It's the part where you upgraded and apparently failed to read the release notes.
Or in the OPs case, installed a totally different application and was surprised by an incompatibility.