As suspected, first generation AirTag does not appear to support the Apple Watch Precision Finding experience introduced with iOS 26.2.1, and it becomes obvious the moment you try to set it up.
After updating to iOS 26.2.1, I opened Apple Watch Control Center and tried to add the new Find Items widget. The widget itself was available, but when it came to selecting an AirTag, none of my three AirTags appeared. They all show up in Find My on iPhone and still work normally for location tracking and playing a sound, but the Watch would not let me add or surface them through Control Center.
I then tried again, and this time the Find Items control had vanished entirely and restarting the watch did not bring it back.
While this could be a software issue and I will keep trying. It does strongly suggests Apple Watch Precision Finding is restricted to newer AirTag hardware. In other words, this is not just an iOS update. It looks like a compatibility gate. If you are still on gen 1, you keep the core AirTag experience, but you do not get that new “find it from your wrist” workflow.
[…] The new AirTag requires an iPhone running an incoming iOS 26.2.1 update or later, and watchOS 26.2.1 is also coming, and is required to enable Precision Finding to the Apple Watch. It would seem that only the new AirTags support the precision finding featuring and not the 1st Generation. […]