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Windows Server 2012 R2 Hyper-V introduced generation 2 VMs. When generation 2 VMs were introduced, existing VMs were designated as generation 1 VMs.
Generation 2 VMs included many new enhancements, including the following:
Generation 1 VMs are still supported with Hyper-V 2016 and newer. The New Virtual Machine Wizard may default to generation 1. However, all new VMs should be created as generation 2 as a best practice, if the guest operating system will support it.
For either generation of guest VM, if there are multiple disks requiring high I/O, each disk can be associated with its own virtual disk controller to maximize performance.
The VM generation cannot be changed once a VM has been created (see the warning message in Figure 4). However, conversion may be possible using third-party tools (use at your own risk). The best practice method is to migrate a workload to a generation 2 VM rather than attempting to convert a generation 1 VM to generation 2.