So i have a similar issue, im using cubase version 9.5.1 which is an earlier version than what you are using in Windows 7.
Please check the video for my explanation.
As you see when you pitch in cubase 8.5 it pitches only the region you have cut or selected, not adding extra sample information.
But in Cubase 9.5.1 it pitches it correctly at first (region gets smaller), but if you want to change your decision on how much you want to transpose then it will not make the region smaller or bigger but bring in the extra sample information.
As a hardcore Cubase User, I have not yet fully moved over to 9.5 as there as so many bugs which need fixing as of yet, and 8.5 has been really stable.
but I will install the latest version of 9.5.4 and report back to see if there are the same or similar issues.