If heat reduction is not better on water cooled then how can a smaller cu in motor produce more horsepower. The heat is generated in cylinder. My understanding shorter stroke. More rpm. Water cooled runs lower temp than its air cooled counterpart.
You're partially right regarding shorter piston stroke, but it has nothing to do with whether it's liquid or air cooled.
I believe the answer to your question is in the cams. Liquid cooled engines generally have overhead cams which allow the valves to stay sealed at higher rpms. Air cooled engines use push rods, which limit the rpm red line due to the push rods' mass and inertia, which lower the rpms at which the valves begin to float.
My M109R red lines at 8500. My Springfield red lines around 5000 rpm. Both are V-Twins. The M109R is faster despite the fact that displacement is smaller. Is this because it has a shorter stroke? Partially. Is this because it's liquid cooled? No. It's because it has overhead cams.
For the purpose of this response, generally speaking, rpm = horsepower. Back in the early '80s, I raced my buddy riding a Sportster. I was riding a GS550E, a four cylinder engine that was only running on 3 cylinders. I was way ahead of him, despite his having more than twice the displacement. He finally caught up to me as his top speed was about 5 mph faster than my injured bike could produce.
Push rod V-Twins is a matter of aesthetics. I personally love the look of a push rod V-Twin.