I could be wrong, but I think they carefully balanced it so that it doesn't break Bounded Accuracy as is.
A hexblade in Medium armor can have AC 15 (Half-Plate) +2 (Shield) = 17 and can burn spells and a reaction for +5 = 22 about 4 times a day (4 spell slots at 20th level).
The hexblade with 14 dex, wearing +3 half-plate and a +3 shield and a ring and cloak of protection has
17+2+3+3+1+1 = 27 AC
add in shield and it hits 32 AC.
An ancient red dragon has a +17 to hit. It hits the base hexblade on a 10+, and needs a 15+ to hit the one with shield up.
The more serious optimizer gets 18 (plate) 2 (shield) 6 (enhancement) 1 (defence style) 2 (staff of power) 1 (ring or cloak) armor of faith (2) for 32 base AC, and 37 with shield. Now the ancient red dragon needs a natural 20 to connect with shield spell up.
While that kind of insane levels of AC takes a lot of resources, the return on AC is hyperbolic; so at almost every point in the game, if you heavily optimize AC, the returns are high. Shield is one of the largest portions of this boost, and it only requires you to burn 1st level slots at a rate of less than 1 per round.
Another less ridiculous example is a forge cleric with 1 level of fighter (defensive style) and 1 level of a shield-providing class has 23 AC +5 for shield spell without any magic items by around level 10.
I could go on; there are lots of ways to get good AC.
A sorcerer in no armor can have AC 10 and can burn spells and a reaction for +5 = 15 about 22 times a day (22 spell slots at 20th level).
A wizard bladesinger in light armor can have AC 12 and can burn spells and a reaction for +5 = 17 about 22 times a day (22 spell slots at 20th level).
A Fighter in Heavy armor can have AC 18 (Plate) +2 (Shield) all the time without burning anything = 20
You aren't using multiclassing and you aren't using magical items and you aren't using any kind of significant AC optimization.
I mean, the wizard bladesinger can have mage armor (13) and as much dex as they want and gets to add their intelligence to their AC. At 14 dex and 20 int, that is 13+2+5 or 20 AC. And that is at level 8.
If you think bladesingers have 17 AC after casting shield, I'm very confused.
Also of note, as a 1st level spell Shield is easy to counter and casting it prevents casting any other spells for the most part. Likewise, casting any other spells means you can't cast shield that turn for the most part.
Ok, so I think you are confused. Shield is a reaction spell. So it doesn't block casting any spells except other reaction spells like counterspell and featherfall.
That action economy is one of the reasons it is ridiculously strong.
"have resistance against damage from all attacks" is too powerful. You're now gaining an entirely different kind of benefit which can drastically reduce the damage you take from an attack which does not require an attack roll against your AC. Now the spell is even better as a first level slot! It's now Shield PLUS Absorb Elements (the other great first level spell).
So your position is that this makes the spell too strong.
Note that absorb elements works on any source of elemental damage. Such damage is often in larger "chunks" than attacks; individual attacks tend not to be as large as save-or-take-damage effects at a given level.
It works on the triggering attack, and it works on one additional attack at 1st level. I could be convinced to make it work on 0 additional attacks at 1st level, and 1 per higher level slot?
Just thought I'd reword the spell to make it a little easier for me to understand.
Looking at it, I still don't see this really being used with a spell slot higher than 1st since protecting against 2 attacks is still a great use of the spell and a spellcaster quite likely isn't going to be subjected to too many attacks in a single round that will make them want to burn a higher level spell slot. That is, the rest of the party is also a threat that needs to be dealt with so the enemy may not be focusing exclusively on the wizard or sorcerer.
So, you aren't seeing games where tanky gishes get shield and become nearly unhittable.
If you aren't seeing that problem, then no, this modification has little impact.
Also, if you have a dragon tearing into the wizard, it will probably want to finish the job and focus fire. It flies up to the wizard, does claw/claw/bite. Then it gets 3 legendary actions; unless the next player gets that wizard out of there, the wizard is going to be attacked a few more times.
In that situation, the wizard is going to want to use a higher than 1st level slot.
Similarly, if you have a bunch of archers shooting at you, a higher than 1st level slot might be a good idea.
If a lone foe manages to break through the lines and make one swipe, and your turn is next, a 1st level slot is good.