This issue is tested and is not reproducible in ArcGIS Pro 2.7, and this is expected behavior when seen initially. 'Add to Display' adds a layer whose name includes both the ModelBuilder variable name and the value of the variable. Refer to https://pro.arcgis.com/en/pro-app/2.6/help/analysis/geoprocessing/modelbuilder/run-a-model.htm. In this instance, the name of the output variable is something like %test%, which caused confusion.