This article assumes that you have already installed an Ubuntu Linux operating system to a virtual hard disk. Multiple tools exist to create .vhd files, for example a virtualization solution such as Hyper-V. For instructions, see Install the Hyper-V Role and Configure a Virtual Machine.

Ubuntu installation notes

• Please see also General Linux Installation Notes for more tips on preparing Linux for Azure.
• The VHDX format is not supported in Azure, only fixed VHD. You can convert the disk to VHD format using Hyper-V Manager or the convert-vhd cmdlet.
• When installing the Linux system it is recommended that you use standard partitions rather than LVM (often the default for many installations). This will avoid LVM name conflicts with cloned VMs, particularly if an OS disk ever needs to be attached to another VM for troubleshooting. LVM or RAID may be used on data disks if preferred.
• Do not configure a swap partition on the OS disk. The Linux agent can be configured to create a swap file on the temporary resource disk. More information about this can be found in the steps below.
• All VHDs on Azure must have a virtual size aligned to 1MB. When converting from a raw disk to VHD you must ensure that the raw disk size is a multiple of 1MB before conversion. See Linux Installation Notes for more information.

Source: Create and upload an Ubuntu Linux VHD in Azure | Microsoft Docs