Hello @Michael Shparber ,
Thanks for reaching out to Microsoft Q&A platform.
Since it is a Virtualized VM , it might show as HDD on OS level which is by design. Basically the OS which runs in the VM is called "Guest OS" . This Guest OS will have limited visibility in the Azure Infrastructure.
You can also test it in a local laptop which has Hypervisor capability , create a Virtual VM - It will show you the same.
Regards,
Shiva.