Hi Crod-8019,
Yes, the same behavior applies to Azure VMs in stopped/deallocated state.
To add: In the event a VM is in the stopped deallocated state, the backups are retained based on the retention range you selected in the backup policy (e.g. 28 days). Once the retention period is over, only the last successful backup snapshot is preserved as the last known recovery point.
There is also a soft delete feature for Azure VM backups that extends the retention period. Backups in soft delete state are kept for 14 additional days at no extra cost.
Also recommend reviewing the content here for relevant details.
Hope this helps.