Does this indicate that one of these streams is not using hardware transcoding?

Server Version#: 1.25.2.5319

Is the highlighted stream not hardware transcoding? If not, how do I troubleshoot why?

The highlighted stream is using the (i)GPU for hw-accelerated decoding of the source video. But it’s not using the (i)GPU for encoding.
IIRC, some (i)GPUs have restrictions when it comes to SD encoding and Plex is therefore bypassing the hw transcoding for those SD use cases.

It’s an nVidia card, if that matters.

nVidia cards are restricted to 2 concurrent encodes, AFAIK.
Unless they are pricey Quadro cards.

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It’s unlimited.

It is now showing (hw) on the same stream and CPU is back to normal. That seems odd.

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