Not to pick on Cisco ( CSCO) this week, but a lot of investors are betting that bad news will knock the stock down a bit.

As the networking gearmaker's earnings approach, the short interest in the stock has increased 35% in the past month. There are currently 76.6 million shares shorted, the highest level of short interest in Cisco over the past year.

By shorting, it means people borrowed 76 million Cisco shares on the hope that the value will fall and they can replace the stock at a lower price and pocket the difference.

So what's looming on Cisco's horizon that could hurt the stock: For one, fiscal third-quarter earnings next month. The bears suspect that the company will disappoint on earnings, or more likely slash guidance as tight-fisted IT buyers and phone companies conserve cash amid a global recession.

Why the gloom?

There's been no shortage of new forecasts showing that demand for tech gear is still falling.

Earlier this week, Morgan Stanley released the results of its survey of 150 IT chiefs. Despite the recent stock market rally, these spending decision makers sounded even more cautious about their budget plans. CIO's are 5.8% less likely to increase spending this year, and Morgan Stanley says that puts total 2009 IT spending 3.5% below year-ago levels.

Even more alarming, about 40% of CIOs now expect to cut their spending plans and a mere 4% thought they might increase their budgets this year.

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