Did you know that you could write any React Application as a single React Component? There's absolutely nothing technically stopping React from putting your entire application into one giant component. Your function would be HUGE. There'd be a TON of hooks for state and side-effects, but it's totally possible.

If you tried this though you'd face a few problems:

1. Performance would probably suffer: Every state change results in a re-render of the entire application.
2. Code sharing/reusability would be... not easy. At least if you made it a class component, which you might have to do if you wanted to use componentDidCatch to handle runtime errors. If you were allowed to use react-error-boundary so you could use hooks, then it would be considerably easier. But... I digress...
3. State would be a challenge: Knowing which pieces of state and event handlers went with what parts of JSX would make your head hurt 😬 and lead to some hard to track down bugs 🐜 (This is one benefit of the separation of concerns).
4. Testing would be 100% integration: Not necessarily an altogether bad thing, but it would be pretty tough to test edge cases and keep things isolated to the parts that you're trying to test, so you would suffer big-time from over-testing (which is a common mistake in E2E testing).
5. Working together on the codebase with multiple engineers would just be terrible. Can you imagine the git diffs and merge conflicts?!
6. Using third party component libraries would be... ummm... impossible? If we're writing everything as a single component third party libraries is at odds with that goal! And even if we allowed using third party components, what about HOCs like react-emotion? Not allowed! (Besides, you should use the css prop anyway 😉).
7. Encapsulating imperative abstractions/APIs in a more declarative component API wouldn't be allowed either meaning that the imperative API would be littered throughout the lifecycle hooks of our one giant component, leading to harder to follow code. (Again, unless you're using hooks, in which case you could group relevant hooks together, making it easier to manage, but still a bit of a nightmare).

These are the reasons that we write custom components. It allows us to solve these problems.

I've had a question on my AMA for a while: Best ways/patterns to split app into components. And this is my answer: "When you experience one of the problems above, that's when you break your component into multiple smaller components. NOT BEFORE." Breaking a single component into multiple components is what's called "abstraction." Abstraction is awesome, but every abstraction comes with a cost, and you have to be aware of that cost and the benefits before you take the plunge

Duplication is far cheaper than the wrong abstraction. — Sandi Metz

So I don't mind if the JSX I return in my component function gets really long. Remember that JSX is just a bunch of JavaScript expressions using the declarative APIs given by components. Not a whole lot can go wrong with code like that and it's much easier to keep that code as it is than breaking out things into a bunch of smaller components and start Prop Drilling everywhere.

Conclusion

So feel free to break up your components into smaller ones, but don't be afraid of a growing component until you start experiencing real problems. It's WAY easier to maintain it until it needs to be broken up than maintain a pre-mature abstraction. Good luck!