Yes, Chidori does low damage. If you check the AOEs of other ninja, you'll see the difference. The difference gets more and more pronounced as stats raise, like when the level cap goes to 80 it will be plainly obvious. High level Midnights trade their AOE damage and Lightning armors for low damage paralysis and acupuncture. He's a status debuffer rather than a killer.

Players get much tankier later and Ninjutsu scales much better in damage. Your squishy wizard Ninjutsu-based ninja will be your main source of damage while Chidori will continue to drop due to its Attack/Ninjutsu split. Later Chidori will be purely used for the paralysis, the damage becomes negligible. Since Ninjutsu is the meta, Resistance is the counter.

Yet the AOE damage is what was being called subpar, not the combo it starts. A jutsu that deal 1 dmg can still start a high single target damage combo. The condition it bestows is a defensive type like Blindness, geared towards the prevention of chases, while the AOE damage isn't great. Ninjutsu scaling better is a fact of the stat itself. It has nothing to do with Midnight Blade or his growth potential. The damage of Ninjutsu attacks have better return rates per point and higher damage coefficients. Late game is all about Ninjutsu and Resistance, defense and attack are subpar and result in tanky brawlers. Like an RPG, Ninjutsu = Wizards that nuke hard and heavy while Attack is for the warriors that swing swords for consistent lower damage. For burst potential and jutsu in general, Ninjutsu scales better and results in higher damage.

Test it yourself, that's all I can say. This is common knowledge from other versions. We know that Hashirama or Tendo is possible to get from 400 seal scrolls through trial and error, given no exact information by the developers for it. Same with coefficients and damage testing. We had spreadsheets detailing every ninja and their mystery damage coefficients gained from hours of testing with gear swaps and damage calculations. This is the same sort of thing players do in every major MMO to calculate the most efficient DPS builds and it's possible to come up with exact information through sufficient testing. However, that was 2 years ago and I don't know the links to them anymore. The chinese forums are in chinese, the german forums are in german, feel free to hunt for a link yourself. Believe me or don't, I really couldn't care less. This is basic information to players who have played the game for years and you can prove it yourself by testing the damage formula (which was also figured out ages ago, but I don't have the link to it anymore).

This game is 3 years old, people have figured out plenty of information on it already just as they do in World of Warcraft or any other MMO with stats.