A semiconductor device has a substrate and first semiconductor die to the substrate. A plurality of vertically-oriented discrete electrical devices, such as a capacitor, inductor, resistor, diode, or transistor, is mounted over the substrate in proximity to the first semiconductor die. A first terminal of the discrete electrical devices is connected to the substrate. A plurality of bumps is formed over the substrate adjacent to the discrete electrical devices. An encapsulant is deposited over and between the first semiconductor die and substrate. A portion of the bumps and a second terminal of the discrete electrical devices is exposed from the encapsulant. An interconnect structure is formed over a surface of the substrate opposite the first semiconductor die. The semiconductor devices are stackable and electrically connected through the substrate, discrete electrical devices, and bumps. A heat spreader or second semiconductor die can be disposed between the stacked semiconductor devices.