I agree with your point, but you're also making a different argument than the point you're replying to. Google knows way more about you than they're legally able to apply to advertising. Just because they can't use it for that specific purpose doesn't mean they lack the information.
No it doesn't. Google is highly restrained when it comes to using what it knows about you to serve you ads. Way more restrained than for example Meta or the newer Chinese apps like TikTok.