It's also worth noting that YouTube also now builds its own transcoding chips [1], and AWS just launched a dedicated transcoding instances based on Xilinx chips:
[1] https://arstechnica.com/gadgets/2021/04/youtube-is-now-build... [2] https://aws.amazon.com/ec2/instance-types/vt1/
Fancy GPUs tend to support 8 or more HD streams, even consumer cards using patched drivers.
Then you have dedicated accelerator hardware, these can pack a tremendous amount of transcode into a tiny package. For example on AWS you have vt1 instances which support 8 (or 16?) simultaneous full HD/SD/QHD ladders at 2x realtime for around $200/mo.
In answer to your actual question, at least YouTube selectively transcodes using fancier/more specific methods according to the popularity of the content. They do the cheap thing in bulk and the high quality thing for the 1% of content folk actually watch