Specified bootDiagnostics type to UserManaged or Disabled in install-config as following:
===================
platform:
  azure:
    region: mtcazs
    baseDomainResourceGroupName: os4-common
    cloudName: AzureStackCloud
    clusterOSImage: https://vhdsaqe.blob.mtcazs.wwtatc.com/vhd/rhcos-9.6.20250523-0-azurestack.x86_64.vhd
    armEndpoint: https://management.mtcazs.wwtatc.com
    defaultMachinePlatform:
      bootDiagnostics:
        type: UserManaged
        resourceGroup: jima-test-rg
        storageAccountName: jimatestsa
Or
===================
platform:
  azure:
    region: mtcazs
    baseDomainResourceGroupName: os4-common
    cloudName: AzureStackCloud
    clusterOSImage: https://vhdsaqe.blob.mtcazs.wwtatc.com/vhd/rhcos-9.6.20250523-0-azurestack.x86_64.vhd
    armEndpoint: https://management.mtcazs.wwtatc.com
    defaultMachinePlatform:
      bootDiagnostics:
        type: Disabled

Created manifests and checked ClusterAPI machine manifests, regardless of install-config used, boot diagnostics type is always set to UserManaged and its URI is set to installer storage account blob URI.

===========
$ cat 10_inframachine_jimaash28a-n5lq6-bootstrap.yaml 
apiVersion: infrastructure.cluster.x-k8s.io/v1beta1
kind: AzureMachine
<......>
  diagnostics:
    boot:
      storageAccountType: UserManaged
      userManaged:
        storageAccountURI: https://jimaash28an5lq6sa.blob.mtcazs.wwtatc.com
<......>

    4.19.0-rc.3

    Always

    1. Prepare install-config and set bootDiagnostics type to UserManaged or Disabled
    2. Create manifests
    3. 
    

    ClusterAPI machine manifests are not set to expected value for bootDiagnostics based on install-config

    ClusterAPI machine manifests have expected setting for bootDiagnostics based on install-config