Took some time to figure it out, but this is why the issue occurs:
If you are setting your “target” every frame, the Look At node would never have a chance to interpolate — it would be constantly resetting to the new target position.
To fix this issue interpolate your target variable too, by using VInterpTo or RInterpTo (as someone showed on the screenshot above).
Unreal should implement some updates to this node so it would work better out of the box.