IBM's adjusted earnings per share beat expectations. But the company has been helped by factors other than its core operations to keep earnings in line with expectations, Garcha said.
For instance, the company has seen isolated tax benefits that left an effective tax rate of negative 23 percent in the first quarter of 2017, and negative 95 percent a year ago. That's compared to their adjusted ongoing effective operating tax rate of about 15 percent.
The company has also focused on income from intellectual property, Garcha said.
"Some of those levers are beginning to run out," Garcha said. "And when you start peeling away, and looking at the numbers, for example, last night, and you look at the underlying EPS, it could have missed Street estimates."
Martin Schroeter, IBM's chief financial officer, told CNBC on Tuesday that the company was "not solely focused" on delivering earnings growth. He told analysts on a conference call that optimizing taxes is expected by shareholders, pointing out that this year's net tax benefit of nearly $500 million was less than last year's $1.2 billion Japanese tax refund.
Still, Schroeter said: "One of our focuses — and it always has been, now the timing is right — is to get the returns for our investments. If you were to poll 100 IBM executives, it's something that they'd all say, now it's time to get the returns."
The company's newer businesses have certainly seen a pop: Revenue from strategic imperatives like analytics, mobility and security grew 12 percent to $7.8 billion, while cloud revenue grew 33 percent to $3.5 billion. The company expects to earn about $13.80 per share this year, as business picks up in the second half of the year.
"IBM [has] a very strong competitive 'moat' with enterprises," Garcha said. "They have the ear of [chief information officers] absolutely. Here's the issue: This is a company now where we are debating whether they can make $13.80 of earnings, when it was supposed to be doing $20 of earnings not so long ago. So the issue is: Could they stabilize...? Yes. But will their fundamentals do it at today's level of profitability? That's where we have some doubts."
Garcha is much more pessimistic than the average analyst covering IBM: He has a $110 price target on shares of IBM, compared to the average in FactSet of $167.90. But IBM shares traded 5 percent lower midday on Wednesday.
"This set of results fundamentally teaches us the multiyear transition, and the painful transition that IBM is going through," Garcha said. He later added: "Masking that decline is becoming increasingly difficult. ... There's a legitimate risk of a reset coming."
Disclosure: Credit Suisse owns a greater than 1 percent stake in IBM, and IBM is an investment banking client.