AO definitely does have a place in the rendering of terrain.
The rendering technique used is not the same for all distances. For close up, relatively local views, real time global illumination could be added without a major performance hit so long as the resolution was configurable.
However at larger distances where detail is not noticeable, BAKED ambient occlusion and shadowing can be applied. This would give an approximation of real time GI but with a low performance cost. Also, instead of baking AO you could use post processed AO (that is, applying AO to just the final rasterised render). This is already done with the likes of ReShade with virtually no performance hit at all.
It's not just one technology against another, its a mix. So saying AO would be unrealistic is not true, it depends on the usage.