A semiconductor device has a first semiconductor die including TSVs mounted to a carrier with a thermally releasable layer. A first encapsulant having a first coefficient of thermal expansion CTE is deposited over the first semiconductor die. The first encapsulant includes an elevated portion in a periphery of the first encapsulant that reduces warpage. A surface of the TSVs is exposed. A second semiconductor die is mounted to the surface of the TSVs and forms a gap between the first and second semiconductor die. A second encapsulant having a second CTE is deposited over the first and second semiconductor die and within the gap. The first CTE is greater than the second CTE. In one embodiment, the first and second encapsulants are formed in a chase mold. An interconnect structure is formed over the first and second semiconductor die.