diff --git a/pkg/cloudprovider/cloudprovider.go b/pkg/cloudprovider/cloudprovider.go
index 8ba4de9..b22738a 100644
--- a/pkg/cloudprovider/cloudprovider.go
+++ b/pkg/cloudprovider/cloudprovider.go
@@ -23,6 +23,7 @@ import (
 	"fmt"
 	"log"
 	"slices"
+	"strconv"
 	"strings"
 	"sync"
 	"time"
@@ -611,7 +612,8 @@ func filterCompatibleInstanceTypes(instanceTypes []*ClusterAPIInstanceType, node
 	filteredInstances := lo.Filter(instanceTypes, func(i *ClusterAPIInstanceType, _ int) bool {
 		// TODO (elmiko) if/when we have offering availability, this is a good place to filter out unavailable instance types
 		return reqs.Compatible(i.Requirements, scheduling.AllowUndefinedWellKnownLabels) == nil &&
-			resources.Fits(nodeClaim.Spec.Resources.Requests, i.Allocatable())
+			resources.Fits(nodeClaim.Spec.Resources.Requests, i.Allocatable()) &&
+			i.Offerings.Available().HasCompatible(reqs)
 	})
 
 	return filteredInstances
@@ -631,6 +633,25 @@ func labelsFromScaleFromZeroAnnotation(annotation string) map[string]string {
 	return labels
 }
 
+// isBelowMaxSize checks if the MachineDeployment's current replicas are below the max size
+// defined by the Cluster Autoscaler annotation. If the annotation is not present or cannot
+// be parsed, it returns true (no limit enforced).
+func isBelowMaxSize(machineDeployment *capiv1beta1.MachineDeployment) bool {
+	if machineDeployment == nil {
+		return false
+	}
+	maxSizeStr, ok := machineDeployment.Annotations[capiv1beta1.AutoscalerMaxSizeAnnotation]
+	if !ok {
+		return true
+	}
+	maxSize, err := strconv.Atoi(maxSizeStr)
+	if err != nil {
+		return true
+	}
+	replicas := int(ptr.Deref(machineDeployment.Spec.Replicas, 0))
+	return replicas < maxSize
+}
+
 func machineDeploymentToInstanceType(machineDeployment *capiv1beta1.MachineDeployment) *ClusterAPIInstanceType {
 	instanceType := &ClusterAPIInstanceType{}
 
@@ -657,7 +678,7 @@ func machineDeploymentToInstanceType(machineDeployment *capiv1beta1.MachineDeplo
 		&cloudprovider.Offering{
 			Requirements: scheduling.NewRequirements(requirements...),
 			Price:        0.0,
-			Available:    true,
+			Available:    isBelowMaxSize(machineDeployment),
 		},
 	}
 
diff --git a/pkg/cloudprovider/cloudprovider_test.go b/pkg/cloudprovider/cloudprovider_test.go
index a4fd99d..779221d 100644
--- a/pkg/cloudprovider/cloudprovider_test.go
+++ b/pkg/cloudprovider/cloudprovider_test.go
@@ -720,6 +720,96 @@ var _ = Describe("machineDeploymentToInstanceType function", func() {
 	})
 })
 
+var _ = Describe("isBelowMaxSize function", func() {
+	It("returns false when MachineDeployment is nil", func() {
+		Expect(isBelowMaxSize(nil)).To(BeFalse())
+	})
+
+	It("returns true when no max size annotation is present", func() {
+		md := newMachineDeployment("md-1", "test-cluster", true)
+		md.Spec.Replicas = ptr.To(int32(5))
+		Expect(isBelowMaxSize(md)).To(BeTrue())
+	})
+
+	It("returns true when replicas are below max size", func() {
+		md := newMachineDeployment("md-1", "test-cluster", true)
+		md.Spec.Replicas = ptr.To(int32(3))
+		md.Annotations = map[string]string{
+			capiv1beta1.AutoscalerMaxSizeAnnotation: "10",
+		}
+		Expect(isBelowMaxSize(md)).To(BeTrue())
+	})
+
+	It("returns false when replicas equal max size", func() {
+		md := newMachineDeployment("md-1", "test-cluster", true)
+		md.Spec.Replicas = ptr.To(int32(10))
+		md.Annotations = map[string]string{
+			capiv1beta1.AutoscalerMaxSizeAnnotation: "10",
+		}
+		Expect(isBelowMaxSize(md)).To(BeFalse())
+	})
+
+	It("returns false when replicas exceed max size", func() {
+		md := newMachineDeployment("md-1", "test-cluster", true)
+		md.Spec.Replicas = ptr.To(int32(12))
+		md.Annotations = map[string]string{
+			capiv1beta1.AutoscalerMaxSizeAnnotation: "10",
+		}
+		Expect(isBelowMaxSize(md)).To(BeFalse())
+	})
+
+	It("returns true when max size annotation is not a valid integer", func() {
+		md := newMachineDeployment("md-1", "test-cluster", true)
+		md.Spec.Replicas = ptr.To(int32(5))
+		md.Annotations = map[string]string{
+			capiv1beta1.AutoscalerMaxSizeAnnotation: "not-a-number",
+		}
+		Expect(isBelowMaxSize(md)).To(BeTrue())
+	})
+
+	It("returns true when replicas is nil (defaults to 0)", func() {
+		md := newMachineDeployment("md-1", "test-cluster", true)
+		md.Spec.Replicas = nil
+		md.Annotations = map[string]string{
+			capiv1beta1.AutoscalerMaxSizeAnnotation: "10",
+		}
+		Expect(isBelowMaxSize(md)).To(BeTrue())
+	})
+
+	It("returns false when max size is 0", func() {
+		md := newMachineDeployment("md-1", "test-cluster", true)
+		md.Spec.Replicas = ptr.To(int32(0))
+		md.Annotations = map[string]string{
+			capiv1beta1.AutoscalerMaxSizeAnnotation: "0",
+		}
+		Expect(isBelowMaxSize(md)).To(BeFalse())
+	})
+})
+
+var _ = Describe("machineDeploymentToInstanceType max size behavior", func() {
+	It("sets offering Available to false when replicas are at max size", func() {
+		md := newMachineDeployment("md-1", "test-cluster", true)
+		md.Spec.Replicas = ptr.To(int32(10))
+		md.Annotations = map[string]string{
+			capiv1beta1.AutoscalerMaxSizeAnnotation: "10",
+		}
+		instanceType := machineDeploymentToInstanceType(md)
+		Expect(instanceType.Offerings).To(HaveLen(1))
+		Expect(instanceType.Offerings[0]).To(HaveField("Available", false))
+	})
+
+	It("sets offering Available to true when replicas are below max size", func() {
+		md := newMachineDeployment("md-1", "test-cluster", true)
+		md.Spec.Replicas = ptr.To(int32(3))
+		md.Annotations = map[string]string{
+			capiv1beta1.AutoscalerMaxSizeAnnotation: "10",
+		}
+		instanceType := machineDeploymentToInstanceType(md)
+		Expect(instanceType.Offerings).To(HaveLen(1))
+		Expect(instanceType.Offerings[0]).To(HaveField("Available", true))
+	})
+})
+
 func newMachine(machineName string, clusterName string, karpenterMember bool) *capiv1beta1.Machine {
 	machine := &capiv1beta1.Machine{}
 	machine.SetName(machineName)