Interesting question, I’d imagine that one major limit would be the number of cores your CPU has available. Once you got to more VMs than cores, I’d guess things would quickly grind to a halt?

But I wonder if you could even anywhere near to that point as on searching only L2 VM is mentioned on various sites and that is with warnings of severe performance limitations and for development testing only. While L3 might work the problems may get too bad you can’t practically go beyond that level?