It literally doesn't. It's a data farm. You give them data with your activity that associates your interests, your purchases, your location, your gender, sexual activity, pregnancy status, pets etc through the content you consume.

Remember that YouTube videos have automatically generated captions - they know exactly what's in every video from more than just the tags like before. Where you pause and replay, where you mouse over the screen, what videos you click on, what words make you instantly stop watching in particular all provide the data above to describe who you are and what you want.

That data is valuable en masse even if you don't view ads because it's an incredibly powerful tool for targeting ads across all of Google for people that do. It's the biggest demographic data pool in history and studying it multiplies the value of all the ads Google provides. It's even better if you do view ads, obviously, because they can target you with your own data, but if you don't it's still going to be the bulk of Google's data for its entire ads program.

Ignoring the fact YouTube is profitable and has been for almost a decade, it would still be worth operating for Google at a loss because of this.