We're enduring a particularly hot summer in the northern hemisphere, so it is understandable if powerful, pint-sized PCs are getting relatively toasty during long gaming sessions. However, Valve has confirmed that the Steam Machine's red light bar warning is bugged and being triggered prematurely. Redditor Pure-Outcome-5977 shared a Steam Support message that appears to confirm that a BIOS fix is on the way to raise the temperature and throttling red light warning threshold for the CPU/GPU from 95/90 to 100/100 degrees Celsius.
Update Regarding Red Light During Gameplay from r/steammachine