What is the reason behind the never return value in this typescript template?

As demonstrated in this example using TypeScript:

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type FirstOrSecond<condition, T1, T2> = condition extends never ? T1 : T2

type foo = never extends never ? () => 'hi' : (arg1: never) => 'hi'
type wtf = FirstOrSecond<never, () => 'hi', (arg1: never) => 'hi'>

The generic function FirstOrSecond assigns never to the wtf variable, while the specific definition of foo assigns () => 'hi' as the type.

What causes the generic function to behave unexpectedly?

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