Heat oil in a large skillet over medium heat. Add diced onion and cook for 3-4 minutes until softened and fragrant. Stir in minced jalapeños and garlic, cooking for another minute until the garlic becomes aromatic but not browned.

Add drained diced tomatoes, cumin, and smoked paprika to the skillet. Let this mixture simmer for 2-3 minutes, allowing the flavors to meld together. The tomatoes should release their juices and create a slightly saucy consistency.

Lower heat to medium-low and add the softened cream cheese in chunks. Stir continuously as it melts, breaking up any lumps with your spoon. Pour in the milk gradually, whisking to combine everything into a velvety base.

Add the grated cheddar and Monterey Jack cheese one handful at a time, stirring constantly in a figure-eight motion. This prevents the cheese from seizing up and ensures even melting. Season with salt and pepper to taste.