Creating VM is probably most often used, I can't believe pulumi couldn't handle the replacement of the VM gracefully, has anybody experience same issue? or did I do anything wrong?

Sounds like a bug. Could you cut a ticket in https://github.com/pulumi/pulumi-azure with portion of the code, versions of pulumi and provider etc?

Yeah, a code sample would help. It sounds like something is off with dependency order.

Thanks Vivek and Mikhail. I've created the ticket https://github.com/pulumi/pulumi-azure/issues/811