A semiconductor device has a first substrate and electrical component disposed over the first substrate. A graphene layer is disposed over the electrical component, and a thermal interface material is disposed between the graphene layer. A heat sink is disposed over the thermal interface material. The graphene layer, in combination with the thermal interface material, aids with the heat transfer between the electrical component and heat sink. The graphene layer may be disposed over a second substrate made of copper. An encapsulant is deposited over the first substrate and around the electrical component and graphene substrate. The thermal interface material and heat sink may extend over the encapsulant. The heat sink can have vertical or angled extensions from the horizontal portion of the heat sink down to the substrate. The heat sink can extend over multiple modules.