When the Flow updates the Opportunity, will the Flow trigger itself again and potentially create an infinite loop? If yes, how does Salesforce prevent an infinite loop, and what is the best way to design the Flow to avoid unnecessary re-execution?

Yes, the Flow can be triggered again when it updates the same Opportunity. Salesforce does not automatically prevent recursion in every case. 

To avoid unnecessary re-execution: 

•  Use “Only when a record is updated to meet the condition requirements” when possible. 
•  Add a Decision checking whether the target field actually needs to change. 
•  Use a Boolean/flag field such as Processed__c to prevent repeat processing. 
•  Prefer Before-Save Flow for same-record field updates when no related records/actions are required. 

Design the Flow so the update makes the record fail the trigger/decision condition on the next execution, preventing an unnecessary loop.