Piper Jaffray sees virtual reality partnerships boosting Apple's iPhone business near-term

Investment firm Piper Jaffray continues to believe that virtual reality and augmented reality will play a huge part in Apple's future, but the transition toward such technology will be gradual, likely leveraging the popularity of the iPhone in the shorter term.

Analyst Gene Munster expects that Apple will begin working with third-party manufacturers to enable iPhone-powered VR headsets within the next two years. He believes that Apple will expand its "Made for iPhone" program to include VR capabilities.

Munster compared this approach to Apple's current investment in CarPlay. Apple is widely believed to be working on its own vehicular technology, dubbed "Project Titan," but in the interim the company has a presence in the automotive space through in-dash systems.

This also stands in contrast to the Apple Watch, where Apple decided to jump into the growing wearables market headfirst, rather than letting companies like Fitbit or Pebble continue to grow marketshare with iPhone-connected devices. In Munster's view, Apple isn't interested in selling its own $100 iPhone-driven headset to enter the market, but it might make it easier for third-party manufacturers to do so.

Still, like the Apple Watch, VR is likely to be viewed by Apple as a companion to the iPhone, and something to complement it and potentially drive more sales, rather than a standalone product — at least at first, Munster said.

Even without Made for iPhone support, he believes "true VR experiences" will be enabled by device makers who are planning to release iPhone-compatible virtual reality hardware this fall.

Looking longer term, he sees "mixed reality" playing a part in Apple's product lineup between 2021 and 2025. He sees mixed reality as the ultimate successor to VR, and also as the longterm future of computing.

"Although it's too early to say what the transition to VR/MR will mean to Apple's model, we are confident Apple will be a significant player in creating the next computing paradigm," Munster wrote.

Some investors may be concerned that VR and, ultimately, mixed reality will eventually replace or supplant devices like the iPhone. But Munster believes that Apple co-founder Steve Jobs created a culture at his company that embraces the "Innovator's Dilemma," a reference to the book by Clayton Christensen, which says companies are reluctant to invest in new markets with smaller opportunities that may jeopardize their current products.

"Apple has historically cannibalized products including the iPod via the iPhone, Macs for a short time with iPads and perhaps again with the iPad Pro, and iPads with the iPhone 6/6s+," he wrote. "While Apple has yet to launch a product that cannibalizes the iPhone franchise, we believe that the company realizes that the smartphone as we know it won't last forever."

Munster is perhaps best known among technology enthusiasts as a longtime proponent of Apple building a full-fledged television set. He finally abandoned those hopes last year, telling investors he no longer believed Apple would sell its own HDTV.

Now he has focused his longterm attention on VR and AR, as well as rumors of an Apple-built car.

Piper Jaffray is one of the most bullish firms regarding AAPL stock, maintaining a price target of $172 with an "overweight" rating.