Step 1

Preheat oven to 425 degrees F (220 degrees C). Arrange potato nuggets in a single layer on a baking sheet.

Step 2

Bake in the preheated oven until lightly golden, 20 to 25 minutes.

Step 3

Place bacon in a large skillet and cook over medium-high heat, turning occasionally, until evenly browned, about 10 minutes. Drain bacon slices on paper towels and chop coarsely.

Step 4

Melt butter in a saucepan over medium heat; add shallot and cook until fragrant. Stir in flour and cook until light golden, about 2 minutes. Whisk in milk and 2 tablespoons sour cream; stir until smooth and thick, about 5 minutes. Season with black pepper and nutmeg. Stir in 1 cup Cheddar cheese until fully melted.

Step 5

Transfer potatoes to a 9x13-inch baking dish. Sprinkle bacon on top. Pour cheese sauce over the potatoes. Sprinkle remaining 1/2 cup Cheddar cheese on top.

Step 6

Bake in the preheated oven just until cheese melts, about 7 minutes. Remove from the oven; top with green onions and 2 tablespoons sour cream.