Melt butter in a small skillet over medium-low heat.
Add shallot, jalapeno, garlic, chili powder, salt, and pepper. Cook, stirring occasionally until slightly softened, about 3 minutes.
Add flour and stir constantly for 1 minute.
Add ¼ cup of milk and cream cheese. Whisking constantly, cook until thickened and smooth, about 2 minutes.
Slowly whisk in remaining ¼ cup milk and cook until combined and starting to steam.
Remove from heat, and add in shredded cheese. Whisk constantly until the cheese is melted, about 4 minutes.
Stir in tomatoes and cilantro and serve immediately with chips!