An Azure service that is used to provision Windows and Linux virtual machines.
I'm glad that you were able to resolve your issue and thank you for posting your solution so that others experiencing the same thing can easily reference this! Since the Microsoft Q&A community has a policy that "The question author cannot accept their own answer. They can only accept answers by others ", I'll repost your solution in case you'd like to "Accept " the answer.
Why am I receiving the following error? OS Provisioning for VM 'VMNAME' did not finish in the allotted time. The VM may still finish provisioning successfully. Please check provisioning state later. Also, make sure the image has been properly prepared (generalized).
Solution from @Mitchell, Daniel :
The issue is caused by the way the image was generalized. Microsoft support recommended the following options when running Sysprep and this appears to have solved my problem. Engineering team has seen that it’s helping in these scenarios where the specialize pass takes a very long time and recommends to sysprep the image with the option /mode:vm.
Sysprep /generalize /shutdown /oobe /mode:vm