MacOS – Making Favorites in Finder collapse according to number of items in it

No. You can rearrange the order of the three you mentioned though - just click and drag to move them.

A possible workaround would be to create a new folder, say "Cloud files", and put it in the sidebar. You could then place aliases of your other folders into that one. This would help trim down the folders in your Favorites section, as well as keep the same quick access to them.

If you select "Snap to Grid" from the "Sort by" menu and "None" from the "Arrange By" menu, it'll keep the same grid spacing regardless of the number of items in the folder.