Availability Set will be created when vmSize is invalid in a region which has zones, but Availability Set should only be created in a region which don’t have zones.

4.11.0-0.nightly-2022-10-07-174524
4.10.0-0.nightly-2022-10-07-205844

Always

1.Set up a cluster in a region which has zones. 
liuhuali@Lius-MacBook-Pro huali-test % oc get machine
NAME                                     PHASE     TYPE              REGION   ZONE   AGE
huliu-az410-99qcm-master-0               Running   Standard_D8s_v3   eastus   2      34m
huliu-az410-99qcm-master-1               Running   Standard_D8s_v3   eastus   3      34m
huliu-az410-99qcm-master-2               Running   Standard_D8s_v3   eastus   1      34m
huliu-az410-99qcm-worker-eastus1-xld58   Running   Standard_D4s_v3   eastus   1      27m
huliu-az410-99qcm-worker-eastus2-chzg8   Running   Standard_D4s_v3   eastus   2      27m
huliu-az410-99qcm-worker-eastus3-7g2mw   Running   Standard_D4s_v3   eastus   3      27m

2.Create a machineset with invalid vmSize 
liuhuali@Lius-MacBook-Pro huali-test % oc create -f ms4.yaml 
machineset.machine.openshift.io/huliu-az410-99qcm-1 created
liuhuali@Lius-MacBook-Pro huali-test % oc get machine                                                       
NAME                                     PHASE     TYPE              REGION   ZONE   AGE
huliu-az410-99qcm-1-cfw6w                Failed                                      8s
huliu-az410-99qcm-master-0               Running   Standard_D8s_v3   eastus   2      35m
huliu-az410-99qcm-master-1               Running   Standard_D8s_v3   eastus   3      35m
huliu-az410-99qcm-master-2               Running   Standard_D8s_v3   eastus   1      35m
huliu-az410-99qcm-worker-eastus1-xld58   Running   Standard_D4s_v3   eastus   1      28m
huliu-az410-99qcm-worker-eastus2-chzg8   Running   Standard_D4s_v3   eastus   2      28m
huliu-az410-99qcm-worker-eastus3-7g2mw   Running   Standard_D4s_v3   eastus   3      28m
liuhuali@Lius-MacBook-Pro huali-test % oc get machine huliu-az410-99qcm-1-cfw6w  -o yaml
apiVersion: machine.openshift.io/v1beta1
kind: Machine
metadata:
  annotations:
    machine.openshift.io/instance-state: Unknown
  creationTimestamp: "2022-10-08T07:42:28Z"
  finalizers:
  - machine.machine.openshift.io
  generateName: huliu-az410-99qcm-1-
  generation: 2
  labels:
    machine.openshift.io/cluster-api-cluster: huliu-az410-99qcm
    machine.openshift.io/cluster-api-machine-role: worker
    machine.openshift.io/cluster-api-machine-type: worker
    machine.openshift.io/cluster-api-machineset: huliu-az410-99qcm-1
  name: huliu-az410-99qcm-1-cfw6w
  namespace: openshift-machine-api
  ownerReferences:
  - apiVersion: machine.openshift.io/v1beta1
    blockOwnerDeletion: true
    controller: true
    kind: MachineSet
    name: huliu-az410-99qcm-1
    uid: bf8f7518-1fa9-4704-bdd7-6d0fde54e38e
  resourceVersion: "31287"
  uid: 303cf672-a2fa-44f3-8793-59801bb78902
spec:
  lifecycleHooks: {}
  metadata: {}
  providerSpec:
    value:
      apiVersion: machine.openshift.io/v1beta1
      credentialsSecret:
        name: azure-cloud-credentials
        namespace: openshift-machine-api
      image:
        offer: ""
        publisher: ""
        resourceID: /resourceGroups/huliu-az410-99qcm-rg/providers/Microsoft.Compute/images/huliu-az410-99qcm
        sku: ""
        version: ""
      kind: AzureMachineProviderSpec
      location: eastus
      managedIdentity: huliu-az410-99qcm-identity
      metadata:
        creationTimestamp: null
        name: huliu-az410-99qcm
      networkResourceGroup: huliu-az410-99qcm-rg
      osDisk:
        diskSettings: {}
        diskSizeGB: 128
        managedDisk:
          storageAccountType: Premium_LRS
        osType: Linux
      publicIP: false
      publicLoadBalancer: huliu-az410-99qcm
      resourceGroup: huliu-az410-99qcm-rg
      spotVMOptions: {}
      subnet: huliu-az410-99qcm-worker-subnet
      userDataSecret:
        name: worker-user-data
      vmSize: invalidStandard_D4s_v3
      vnet: huliu-az410-99qcm-vnet
      zone: "3"
status:
  conditions:
  - lastTransitionTime: "2022-10-08T07:42:28Z"
    status: "True"
    type: Drainable
  - lastTransitionTime: "2022-10-08T07:42:28Z"
    message: Instance has not been created
    reason: InstanceNotCreated
    severity: Warning
    status: "False"
    type: InstanceExists
  - lastTransitionTime: "2022-10-08T07:42:28Z"
    status: "True"
    type: Terminable
  errorMessage: 'failed to reconcile machine "huliu-az410-99qcm-1-cfw6w": failed to
    create vm huliu-az410-99qcm-1-cfw6w: failure sending request for machine huliu-az410-99qcm-1-cfw6w:
    cannot create vm: compute.VirtualMachinesClient#CreateOrUpdate: Failure sending
    request: StatusCode=0 -- Original Error: Code="BadRequest" Message="Virtual Machine
    cannot be created because both Availability Zone and Availability Set were specified.
    Deploying an Availability Set to an Availability Zone isn’t supported."'
  errorReason: InvalidConfiguration
  lastUpdated: "2022-10-08T07:42:35Z"
  phase: Failed
  providerStatus:
    conditions:
    - lastProbeTime: "2022-10-08T07:42:35Z"
      lastTransitionTime: "2022-10-08T07:42:35Z"
      message: 'failed to create vm huliu-az410-99qcm-1-cfw6w: failure sending request
        for machine huliu-az410-99qcm-1-cfw6w: cannot create vm: compute.VirtualMachinesClient#CreateOrUpdate:
        Failure sending request: StatusCode=0 -- Original Error: Code="BadRequest"
        Message="Virtual Machine cannot be created because both Availability Zone
        and Availability Set were specified. Deploying an Availability Set to an Availability
        Zone isn’t supported."'
      reason: MachineCreationFailed
      status: "True"
      type: MachineCreated
    metadata: {}

Created Availability Set for it.

Should not create Availability Set, as the region has zones.

If provided correct vmSize, the machine get Running and will not create Availability Set for it. Not sure why it will create Availability Set for it when vmSize is invalid.

The issue can be reproduced both on 4.11 and 4.10 version, as Availability Set is introduced in 4.10. 
On 4.12, there is bug https://issues.redhat.com/browse/OCPBUGS-1871, will also check this on 4.12 when this bug get verified.