Preheat the air fryer to 375°F (190°C).
Using a sharp knife, carefully cut a horizontal pocket into the side of each chicken breast, being careful not to cut all the way through.
In a medium bowl, combine the softened cream cheese, shredded cheddar cheese, chopped jalapeños, crumbled bacon, garlic powder, onion powder, smoked paprika, salt, and black pepper. Mix until well combined.
Stuff each chicken breast pocket evenly with the jalapeño popper filling. Use toothpicks to secure the opening if needed.
In a shallow bowl, whisk together the egg and water to create an egg wash.
Place the panko breadcrumbs in another shallow bowl.
Dip each stuffed chicken breast first into the egg wash, ensuring it is fully coated, then press into the panko breadcrumbs to coat evenly on all sides.
Lightly brush or spray the coated chicken breasts with olive oil to help them crisp up during cooking.
Place the chicken breasts in the air fryer basket in a single layer, making sure they do not touch.
Cook for 18 to 20 minutes, flipping halfway through, until the chicken reaches an internal temperature of 165°F (74°C) and the coating is golden brown and crispy.
Remove the toothpicks before serving. Let the chicken rest for 3 minutes before slicing and serving.