Hello all. When upgrading to 11.1, I too lost my external display. It fixed some time later after multiple resets. I take my MacBook Air (M1) with me daily and today I discovered something I can duplicate and I hope this helps. It had re-occurred off and on as I updated to 11.2.2 as I have now. It has been quite annoying.
I use a Thunderbolt 3 dock and a Wavlink 3 dock. One at home one at office. Each has an external G-Drive 4TB high speed drive for working files. I carry a small 1TB SSD with me to take work home. We also have a NAS that is mirrored. Yes all of this is overkill, but...
My UPS failed yesterday while the power company replaced the transformer for our street. Upon rebooting the external monitor stopped working. After several attempts to get the screen back something worked. I did it again just to test and it does cause the issue. I tested on my wife's air and same thing. She has a hyperdrive dock and we had to switch between HDMI and Display port and back as well. Not sure why a USB drive locks up an external display path, but since it is all crammed on the same high speed USB pipe I guess stuff happens.
If the power fails, the G-Drive is not ejected properly. Upon power up, the external display does not work. If I power everything back off, disconnect the G-drive, and then restart the MacBook Air and plug the dock back in everything works. I can then plug the G-Drive back in.
This is the first time I could replicate both the failure and the fix. Of course I just bought the biggest UPS that the local e-waste store had in stock.
I hope this helps at least one of you!
Cheers