EDIT: not a bug - as stated in the comments this is intended behavior
"_When some other block update happens next to the piston, it will "wake up" and react to the change. By forming a feedback loop, where the state of the piston controls the state of its power source, it becomes the sensor of a simple BUD switch" - Source Unofficial Minecraft Wiki

when an observer is placed on top of an piston (observer facing downwards, piston facing away) and an conductive block on top of the observer, the piston starts to loop very fast, when done with redstone dust even faster

this does NOT happen if the observer is placed horizontally next to, or below the piston

the output of the observer should not be able to power the observed block through itself, creating a feedback loop

since the output of the observer is 1 block away from the piston, there should be an airgap for the redstone signal

What I expected to happen was...:
Piston should not be affected from observer when being observed

What actually happened was...:
Piston started to extend and retract very fast in a loop

Steps to Reproduce (WITH REDSTONE DUST):
1. Place an Observer FACE DOWN
2. Place Redstone Dust on top (output)
3. Place Piston from below the observer, on face of the observer
4. Piston starts looping very fast

Steps to Reproduce (WITH CONDUCTIVE BLOCK):
1. Place piston
2. Place observer ON TOP facing the side of the piston
3. Place redstone or conductive block on top on the output of observer
4. power the piston to extend it
5. depower the piston to retract it
6. Piston starts looping fast